When it comes to fashion-retail mergers and acquisitions, the past three years have been robust. (Michael Kors snapped up Jimmy Choo; Coach bought Kate Spade; Walmart picked up ShoeBuy, Bonobos and ModCloth — just to name a few.)
The dramatic digital revolution has created fertile ground for wheeling and dealing among retailers as a survival mechanism for the weak and a power play for the strong.
But as the “retail is dying” theme shifts to “retail is evolving,” a sense of calm may be sweeping across the landscape — potentially slowing some of the frantic deal-making.
“We think M&A will continue this year, but a lot of the relevant low-hanging fruit has been picked over the last few years, and the smart acquirers will need to be that much more selective,” said Jeff Van Sinderen, a retail analyst with B. Riley & Co. LLC. “The good news is that at the end of the day, the iconic, strong players are likely to get even stronger as they deploy resources to increase relevance and market share in every possible component of their businesses.”
Here, four major themes that will define fashion and retail M&A in the year ahead.
Finish Line Will Go to Sports Direct
As U.K.-based sporting goods retailer Sports Direct continues to up its stake in Indianapolis-based Finish Line Inc., Susquehanna Financial Group LLLP analyst Sam Poser is doubling down on his prediction that a takeover is imminent.
“I think Finish Line is going to get taken by Sports Direct,” he told Footwear News of his 2018 predictions.
In a U.S. Securities & Exchange Commission filing today, Sports Direct disclosed an aggregate 35 percent economic interest in Finish Line shares — with beneficial ownership of 3.3 million shares and an indirect economic interest in 10.7 million shares.
“Sports Direct has been looking to enter the U.S. market for some time … [its] management understands the sports retail business, as 85 [percent] of SPD’s revenue is driven from sports footwear and apparel retail,” Poser wrote in September. “[And] based on the shareholders rights plan and conversations with Finish Line’s management, we are confident that [its] board is willing to speak to suitors.”
International Names to Become More Attractive
“While domestic is in a state of flux, there are plenty of opportunities for brands outside of the U.S., and that is really a theme worth highlighting,” Van Sinderen said. “I think that domestic companies will be more inclined to make acquisitions of brands that remain relevant — there is a shrinking number of these — and have potential to grow internationally. The potential to build e-commerce — both domestic and international — will also be an important component for acquirers to consider.”
Tax Reform Will Reignite Buyers (Steve Madden & VF Corp.)
A number of retailers — Walmart and Target among them — have started offering statements regarding how they expect to use their new tax savings in 2018. Poser believes some firms will put extra cash flow toward M&A.
“Given the tax [savings], I wouldn’t be surprised to see VF Corp. — even though they just bought [Williamson-Dickie and Icebreaker] — and Steve Madden become more inquisitive,” Poser said. “As to who their targets are, [I don’t know.]”
However, Poser added an important caveat: “I don’t think [the tax savings] will change the due diligence of Madden and VF when it comes to how they do acquisitions. A company they didn’t think was good yesterday — if they haven’t improved — they still wouldn’t buy them today. But it might’ve been something really good that they couldn’t afford previously that they might be able to now.”
Brands Over Retailers
Van Sinderen predicts that more of the M&A transactions in 2018 will be around brands, as opposed to retailers — “aside from perhaps a few take-private transactions of the private equity type.”
“Further, for companies that opt to buy brands, we think it largely will be about leveraging infrastructure and optimizing growth opportunities and not so much about trying to fix brands that have lost relevance, which is inherently tough to do in this environment,” he added.
For his part, Poser suspects that Vince Camuto — whose much buzzed-about procurement by Aldo fell through before closing last year — could be a one to watch on the selling block.