COVID-19 Impact on M&A
The industry's total M&A activity between March 22 – December 31 is down over 33% (859 transactions) compared to the same period in 2019 (1,285 transactions). Strategic buyers drove nearly 85% of transactions between March 22 – December (629 transactions). In comparison, 2019 saw nearly 81% of transactions (877 transactions) completed by strategic buyers within the same period. Transaction volume within Hotels, Resorts and Cruise Lines, a subsector of the Consumer Discretionary industry, has been impacted significantly during COVID-19. Total subsector transaction volume is down over 68% (108 transactions) between March 22 – December 31, compared to that of the same period in 2019 (340 transactions).
Digital Spending Pushed Up U.S. Holiday Retail Sales
U.S. retail sales rose 2.4% between November 1 and Christmas Eve compared with the same period last year, with online sales up 47.2%. As expected, store traffic was down the seven days leading up to Christmas Eve by 31.3% compared to the week before Christmas last year. Anticipating the “COVID-drop,” retailers started holiday promotions earlier this year in October, yet many will still suffer from the e-commerce surge.1
Online Shopping Thrives in Holiday Season During Pandemic
Cyber Monday sales rose more than 15% year over year with $10.84 billion in sales. Black Friday saw less discounting while Cyber Monday deals held steady from 2019. Amazon was the big winner, capturing nearly $1 for every $5 spent over the shopping weekend.2
Macy’s Lobbies to Keep Stores Open During Holiday Period
Department stores lobbied not to close their stores during the critical holiday period as coronavirus cases surged. Industry trade groups appealed to state governors to educate them on the steps members took to make stores safe. However, large city store locations remained challenged due to fewer office workers and tourists. Walmart and Target, which sell groceries and deemed essential, saw rising sales as they were able to stay open, capturing market share in apparel and other categories from other chains.3
Abercrombie & Fitch is Closing Retail Stores
Abercrombie & Fitch is closing seven flagship stores by the end of January 2021, but the benefits of the closures far outweigh the loss. Accounting for about 10% of the brand’s global square footage (~200,00 gross square feet), these stores only accounted for just 1% of the revenue but $30 million in-store occupancy fees and payroll expenses. Closing these stores will remove roughly $85 million of lease liabilities from the company’s balance sheet. A & F’s move repositions its store networks to more omni-enabled stores, integrating digital services and e-commerce into the store experience.4
Darden Restaurants and Other Chains Suffer New Losses During Latest COVID-19 Surge
The latest coronavirus surge fuels new sales losses for sit-down restaurant chains. Darden Restaurants saw same stores sales drop 20.6% in Q4 2020 compared to Q4 2019. Fast-food restaurants have fared better with business up compared to 2019. The Pfizer and Moderna vaccine approvals give the industry hope, but Darden does not expect vaccinations to significantly improve customers’ willingness to dine in for months.5
Unilever Prepares to Cash in on Plant-Based-Food Revolution
Consumer goods giant Unilever sets a high target of $1.2 billion in annual sales of plant-based foods over the next 5-7 years. As demand rises from consumers who are reducing meat and dairy consumption, Unilever aims to help people eat healthy while reducing the environmental impact of the meat supply chain. Unilever intends to expand brands like Vegetarian Butcher into 30+ countries and become the supplier of the plant-based Whopper and chicken nuggets for Burger King. This target comes as multinational consumer goods producers look to break into the “plant revolution,” competing with the market leader, Beyond Meat.6
Cruise Ships, Big and Small, Impacted by COVID
Smaller cruise ships exempt from the suspension on cruise voyages due to COVID-19 continued to operate and experimented with various new precautions. However, the new precautions proved unsuccessful as most cruises had crew or passengers that became ill or tested positive for coronavirus. These outbreaks suggest that it is nearly impossible to prevent outbreaks without extreme measures that would drastically increase costs and reduce entertainment value. Cruise lines are currently working on protocols to protect crew members so that federal authorities will allow them to offer test cruises with passengers. Big operators hope to resume regularly paid cruises from U.S. ports in 2021, although the exact timing is unclear.7
Bed Bath & Beyond Selling Cost Plus World Market, Buys Back More Stock
Bed Bath & Beyond announced it is selling its specialty retailer of casual home furnishings subsidiary, Cost Plus World Market. Kingswood Capital Management, a Los Angeles based private equity firm, will buy Cost Plus. The move aligns with management’s strategy to focus on its flagship brand and allows the company to accelerate the previously announced $225 million share buyback plan by an additional $150 million.8
Samsung Ends the Year Strong with Q4 Profits Up 26% from Last Year
Samsung expects profits will be up 26% from Q4 of last year. Sales for the world’s largest smartphone maker were up 2%, with operating profit up 59%. However, Apple’s iPhone 12 dethroned Samsung’s Galaxy Note 20 Ultra 5G in October as the world’s bestselling 5G smartphone model, closely followed by the iPhone 12 Pro. Samsung is expected to launch the newest versions of its Galaxy smartphone, the Galaxy S21, soon. However, estimates show that sales will fall almost 30% over four quarters than its predecessor, the Galaxy S10, in 2019. This is due to intense competition in the smartphone space.9
Largest Transactions Closed
- Dunkin' Brands Group, Inc.
- Inspire Brands, Inc.
- FanDuel Inc.
- Flutter Entertainment plc
- Safe Harbor Marinas, LLC
- Sun Communities Operating Limited Partnership
- ServiceMaster Brands Businesses of ServiceMaster Global Holdings, Inc.
- Roark Capital Group
- All Of Retail And Operating Assets Of J. C. Penney Company, Inc.
- Simon Property Group, Inc.; Brookfield Property Partners L.P
- Scientific Games Corporation
- Caledonia (Private) Investments Pty Limited
- Substantially All Assets of GNC Holdings, Inc.
- Harbin Pharmaceutical Group Holding Co., Ltd.
- Shoe Palace, Inc./Nice Kicks LLC
- Genesis Holdings Inc.
- Nutrisystem, Inc.
- Kainos Capital LP
- Brand Assets of Ascena Retail Group, Inc.
- Premium Apparel, LLC
This report represents transaction activity as mergers & acquisitions, consolidations, restructurings and spin-offs. Targets are defined as U.S. Based companies with either foreign or U.S. based buyers. Transaction information provided is based on closed dates only.
EBIT - Earnings Before Interest and Taxes