2022 Retail M&A Year in Review: Overview of 2022

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Global dealmaking suffered a record fall during the second half of 2022, as rising interest rates, surging inflation, and the war in Ukraine brought a period of frenetic activity to an abrupt, if not surprising, close.

According to data provider Refinitiv, mergers and acquisitions totaled $3.6 trillion worldwide in 2022, down 37 percent from 2021’s record- breaking level, which is the largest year-over-year percentage decline since 2001. By number of worldwide deals, nearly 55,000 deals were announced in 2022, a decrease of 17 percent from 2021 and a two-year low.

M&A activity began its plunge in May, as recessionary headwinds gathered strength. Between the first and second halves of 2022, total worldwide M&A activity totaled $1.4 trillion, a 33 percent decline compared to the first half of 2022. This drop-off was the largest second-half percentage drop since records began in 1980, partly caused by a 57 percent drop in private equity activity.

The market for consumer and retail M&A was no different. Ongoing supply chain challenges, tighter financing, rising interest rates, inflation, and changing consumer behaviors made companies in this sector less desirable targets. Retail deal values fell to $121.6 billion, a decrease of 48 percent compared to 2021. Deal value in the consumer products and services sector dropped 44 percent compared to 2021, and deal value in consumer staples fell 37 percent.

Retail deal value would have been down even further but for the planned $24.6 billion acquisition of Albertsons by Kroger announced in October 2022 — the first, and only, retail megadeal of 2022. This would be the biggest supermarket transaction ever, besting Albertsons’ buyout by a Cerberus-led consortium for $17.4 billion in 2006, Amazon.com’s $13.7 billion deal for Whole Foods Market in 2017, and Kroger’s $13.5 billion acquisition of Fred Meyer in 1998.

Like the broader M&A market, the number of consumer and retail deals was down significantly from 2021, with a 24 percent decrease in the retail market, a 14 percent decrease in the consumer products and services market, and a 19 percent decrease in the consumer staples market.

Conversely, the discount and department store retailing sector and the household and personal products sector rallied, with deal values over 2021 increasing 158 percent in the discount and department store sector and 55 percent in the household and personal products sector.

One manifestation of these challenging deal conditions was the abandoned M&A process for department store chain Kohl’s. Kohl’s was in sale talks with Franchise Group, but terminated the deal in late June after cutting its outlook for the second quarter, citing softer consumer spending amid decades-high inflation.

At first blush, it may look like the sky fell on the M&A market in 2022. It’s a compelling headline, but the bigger picture shows an active M&A market that’s in line with healthy, pre-COVID levels. The activity levels of 2021 were unsustainable and a correction was inevitable. The question is now to what degree this new business climate — one where short-term volatility in financial markets, inflationary pressures, soaring borrowing costs, supply chain disruptions and geopolitical tensions all appear to be developing into longer-term trends — will continue to slow M&A deal activity.

Looking Forward to 2023

Though consumer and retail, particularly brick-and-mortar, continue to face headwinds in consumer confidence, inflationary pressures, excess inventories, and continued labor shortages in 2023, we nonetheless expect that consumer and retail M&A will continue at “normal” (i.e., pre- COVID) levels this year. M&A will continue to be an indispensable tool for companies seeking to transform business models and reposition themselves for future growth as consumer behavior rapidly evolves in a post-pandemic world. However, we anticipate that the sluggishness of the second half of 2022 will continue into the first half of 2023 until economic uncertainty dissipates.

  • Smaller Deals: We expect small and midsize deal activity to continue to be strong in 2023, while major retail acquisitions, particularly those involving publicly traded companies exposed to recent market volatility, may lag behind in light of recent unsuccessful sale processes, antitrust concerns and high financing costs. In lieu of major acquisitions, smaller bolt-on acquisitions, joint ventures or minority interests may be an effective way to acquire on-strategy capabilities or an expansion outside of core competencies. On the sell-side, we think companies will continue divesting underperforming or noncore assets.
  • Distressed Assets: In the United States, distressed retail M&A activity was very slow in 2022, with retail bankruptcies at a decade-low level. However, we expect that distressed M&A activity will increase in 2023, as difficult market conditions continue to affect liquidity and companies’ ability to refinance upcoming debt maturities. As distressed retailers struggle to maintain their current financial structures, retailers with strong balance sheets will have the opportunity to purchase distressed assets at discounted prices. An increase in distressed sellers should also create more opportunities for private equity buyers, which remain well-capitalized with ample dry power. Globally, these funds are estimated to have $1.68 trillion at their disposal across strategies and approximately half of that is sitting in North American funds.
  • E-Commerce: Even though e-commerce growth has slowed since the height of the pandemic, the future of retail will continue to be a blended experience of online and in-person. For brick-and-mortar retailers falling behind, acquisition may represent an efficient way to rapidly build digital capabilities rather than attempting to build those capabilities in-house on an accelerated time frame, particularly at a time when valuations may be more palatable.
  • ESG: Increasing consumer commitment to social responsibilities, including environmental, social and governance (ESG) and diversity, equity and inclusion (DEI), presents an opportunity for investment and acquisitions into sustainable business models and brands. For example, some grocery retailers have acquired waste management companies to reduce, reuse and recycle waste.
  • Antitrust Scrutiny: Retail M&A will continue to face antitrust scrutiny as a result of high inflation and vocal consumer unrest about rising prices across the board. For example, Albertsons’ proposed merger with Kroger has garnered intense scrutiny from regulators and state attorneys general.

James Kennedy, a partner in Hunton Andrews Kurth LLP’s Richmond office, focuses his practice on mergers and acquisitions, strategic corporate transactions, joint ventures and general  law.



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