M&A Summary:

The Retail and Consumer Business (“RCB”) industry has continued to experience a heightened volume of M&A activity in recent quarters, with a total of 69 deals involving a Canadian party announced or closed during second quarter of 2019. This represents an increase over the 54 industry transactions completed or announced during Q1, and a further increase over the 34 deals completed or announced during the same period last year.

Despite several macro headwinds, the rationale and environment for transactions appears to persist, with both strategic and financial buyers participating in a variety of acquisition types. In fact, one may argue that the quick pace of change in the industry landscape is partly responsible for an uptick in private equity deal participation, which increased from 11% of transactions in 2017 to 15% in 2018. It's possible, for example, that an industry in such flux is an ideal target for the kind of strategic direction and capital resources that private equity funds typically bring to bear.

In addition to providing a differentiated product, retailers in today's environment must navigate new, hybridized and more direct paths to end customers, and consider the strategic role of components such as brick-and-mortar stores, online stores, social media and traditional marketing. With faster shipping and delivery, easy return policies and 24-hour online support, e-commerce allows retailers to not only drive higher sales volume, but also build customer loyalty through direct, positive interactions and issue resolution. While the importance of e-commerce and customer engagement is long established, the tools and enabling technologies have continued to evolve, driving the need for a consistent customer experience at all points in the purchase and use cycle. This evolution, in addition to the broader drive for scale, profitability and brand expansion, is driving transactions throughout the industry.

Moving forward, the evolution of e-commerce will continue into social, voice-driven and frictionless commerce, as retailers look to leverage big data and artificial intelligence to study consumer preferences and adopt strategies such as forecasting consumer spending trends or offering customers product-based recommendations. These digital investments will be significant and may drive M&A activity to provide the capital and expertise to support them. The uptake of digital strategies does not necessarily imply that physical retail will completely disappear, however, as a marketplace will continue to exist for consumers who prefer to make purchasing decisions based on the physical touch and feel of a product. That said, to draw traffic, many retailers will have to shift their focus toward providing personalized customer service and a highly interactive in-store experience.

While the RCB industry continues to undergo significant transformation, the overall trend indicates a conducive environment that supports increased M&A activity.