As one of the sectors at the center of digital disruption from across industries, growth into adjacent business areas is a more significant driver for retailers pursuing acquisitions (retail: 27%; cross-industry: 21%; consumer: 19%).
Additionally, to better understand, engage and sell to consumers, retailers are looking to buy vs. build to enhance their data and digital capabilities. When considering a target asset, they are focusing more on digital strategy and technology alignment (20%) compared to other industries (18%) and consumer companies (17%).
Consistent with other sectors, more than 80% of retailers expect increasing competition for assets in the next 12 months. However, retailers (71%) anticipate that private capital will be a more important source of competition over the next 12 months than cross-sector (67%) or consumer (60%) companies.
In the past, disagreement on price or valuation has been a more significant factor in failed or canceled acquisitions planned by retailers. New digital-led business models and rising competition make this a key factor for more than half of retailers, vs. 36% for cross-industry and 34% for consumer products companies. With retailers facing increasing difficulty to get access to capital, it is likely that price and valuation disagreements also will grow, pushing them to become the highest bidder for the most attractive assets, such as retail tech.
As retailers reshape their strategy to better meet consumers’ needs in the post-pandemic era, they will need a robust capital framework and highly targeted M&A activity to win in a challenging market.
Kristen O'Leary, Chinmay Ojha and Anuj Bhatia of Ernst & Young LLP contributed to this article.