More than just window shopping: unboxing recent M&A activity in the Australian retail sector

By Mark Malinas, Hannah Biggins, Paby Choi, Tim Tabalujan, Isabella Gniot
Mergers & Acquisitions

From 'just browsing' to buying 7 min read

In this Insight, we look at recent M&A trends in the consumer and retail sector, which has not escaped the challenging economic environment. We also highlight some key legal considerations for targets and investors looking at consumer and retail M&A transactions.

Challenging market conditions impacting consumer and retail M&A

After remaining relatively buoyant during the COVID-19 pandemic, we've observed a slowdown in deal activity in the consumer and retail sector, impacted by inflationary pressures, ongoing geopolitical crises, supply chain disruptions and the relative decline in the Australian dollar. Historical deals data (as shown in Figure 1 below) reflects this trend, showing a steady increase in retail and consumer M&A transactions across FY21, FY22 and FY23, with the outlook for consumer/retail M&A more cautious in the first half of FY24. Based on reported data since 1 July 2023, we're projecting fewer consumer and retail deals in FY24, breaking the upward trend seen during the pandemic. With the Reserve Bank of Australia announcing a further interest rate increase on 7 November—the fifth increase in 2023 and the 13th since May 2022 — many target businesses and dealmakers in this sector will need to continue weathering a difficult environment.

Figure 1:1

Despite these challenges and the projected decline in deal volume for FY24, it is worth noting that the past 12 months have seen around 70 deals reported in the consumer and retail space.2 Moreover, the S&P/ASX 200 Retailing Index (which measures the performance of major retailers including Wesfarmers, Harvey Norman, Super Retail Group and JB Hi-Fi) is currently trading 6%3 higher than this time last year.

Several major deals in 2023 have demonstrated a strong interest in premium Australian retail brands, and indicate that highly-differentiated and matured brands appear to be somewhat immune to the softer economic conditions.

These include:

  • global private equity firm Advent International's acquisition of a majority stake in designer label, Zimmermann (on which Allens advised);
  • Japanese chemical and cosmetics company Kao Group's acquisition of Bondi Sands for $450 million;
  • L'Oréal's acquisition of Melbourne-founded Aesop for a reported $3.7 billion;
  • private equity firm Anchorage Capital Partner's acquisition of David Jones (on which Allens also advised); and
  • most recently, Tattarang's acquisition of 147-year old iconic hat company, Akubra.

Recent trends in consumer and retail M&A

Foreign interest

A number of the above deals demonstrate the continued interest of foreign strategic buyers and private equity investors in the Australian consumer and retail sector. The depreciation of the Australian dollar against the US dollar is improving the value equation for these assets, assisting to make Australian transactions increasingly attractive in the short to medium term for foreign buyers.

Distressed sales

The tougher economic environment has led to increased stress in the retail sector. Formal insolvency appointments in the sector have increased 70% from FY22 to FY23, and the current trend is that FY24 insolvencies will remain at higher levels. Distress in the retail sector often comes sharply into focus early in the New Year depending on the important trading results over the holiday period.

Although this increased stress is a reason for some caution, it also presents opportunities for investors. Distressed asset acquisitions can produce a relatively higher yield, given the increased risk associated with the financial position of the target. However, investors should also keep in mind the typical features of a distressed sale process: truncated timelines, less opportunity for due diligence, and often fewer (if any) warranties.

Consistent with what we are seeing in other corners of the APAC region, distressed selling opportunities are live—particularly within fashion—with sale processes currently underway for well-known Australian brands Tigerlily, Sukin, Kookaï and Vine Apparel.

Strategic diversification and demergers

The current market conditions are also seeing an uptick in strategic diversification in the sector (a notable example being Japanese drinks giant Kirin's $1.9 billion buyout of Blackmores vitamins), and retail conglomerates looking to unlock value via demergers that spin off certain assets (for example, Solomon Lew's announcements this year that Premier Investments (which owns brands such as Smiggle and Peter Alexander) is exploring a possible demerger).

Valuation gap 

As we've seen in other sectors (including in the agriculture, food and beverage space) there are continuing valuation gaps between asking and bid prices for target businesses. Many sellers are needing to readjust their pricing expectations. We are seeing this lead to a significant increase in the use of earnouts and other deferred consideration structures, in order to bridge valuation gaps between bidders and sellers.

Longer deal timelines

With market uncertainties, we are seeing bidders investing more time into the due diligence phase to refine their valuations, secure financing and observe seasonal retail trading impacts on the target business. In some cases, we are also observing lengthier regulatory approval processes impacting deal timelines.

Key legal considerations for consumer and retail M&A

Importance of pre-transaction due diligence

To position the business for an M&A opportunity, we are seeing retail and consumer companies allow additional time to optimise their existing operations and business structure, prior to any sale process. Such efforts include undertaking payroll and data privacy compliance audits, as well as reviews of material leases, licences, regulatory approvals and contracts with major customers and suppliers, to ensure that the seller is not caught by surprise when bidders flag material issues like termination triggers or inflexible third-party consent provisions. Streamlining ownership of any key IP assets and confirming the ownership structure of other material assets should also be considered during this phase, particularly if the business intends to demerge non-core brands.

ESG due diligence becoming prevalent

ESG continues to drive M&A activity, including entities divesting assets that are not aligned with longer term ESG strategies, or seeking acquisitions that assist in ESG uplift for the business. We see a strong intersection between retail operations and a number of ESG-related risks, including regarding supply chains, responsible and ethical sourcing and purchasing practices, employee safety and unfair work practices, climate and nature-related risks (including greenwashing) and whistle-blower and governance practices. Bidders are increasingly undertaking ESG-related due diligence on consumer and retail targets to understand these risks more clearly. To highlight the relevance of ESG issues to fashion retailers and the importance of ESG due diligence:

  • it was recently reported that the highly anticipated IPO by ultra-fast global fashion house, Shein, may have been disrupted by allegations of modern slavery issues and adverse environmental impacts; and
  • it is also worth noting the example of Boohoo Group Plc, when its share price plummeted in 2020 after allegations of ill-treatment of staff in its Leicester supply chain. This led to institutional investors reassessing their commitment to the company. It is reported that retailers such as Next, ASOS and Amazon all removed Boohoo clothing from sale.

We have seen a large focus by consumer and retail sector clients on modern slavery matters (including during due diligence), seeking to avoid similar issues with their own supply chains. As consumer expectations continue to evolve and ESG topics mature into broadly accepted investment principles, we see ESG continuing to impact deal activity for this sector in the years to come.

Cyber compliance, resilience and readiness for major reforms

Buyers are now heavily focused on cyber risk in light of the recent major cyber incidents that have affected millions of Australian consumers and businesses, and the regulatory repercussions likely to follow (see our earlier Insight on the Medibank and Optus class actions). This risk may be amplified for retail-based targets, which often collect and store large amounts of customer data in CRM and rewards/loyalty platforms, or which deploy in-store facial recognition technologies.

As we have previously discussed, Australia is also gearing up for the biggest overhaul of privacy laws in nearly a decade. With substantial penalties that may be imposed under the proposed reforms, and the reputational risks that can flow from a data breach incident, it is imperative for target businesses to ensure their cyber-readiness and assess their data privacy measures and compliance in light of the new framework.

Savvy buyers are likely to ask the following questions about potential targets:

  • Is the target managing its data and information technology practices efficiently, effectively and securely (eg if applicable, can the company justify the retention of large volumes of customer data)?
  • What is the nature of the target's customer lists and databases, and have appropriate consents been obtained from those customers for the handling of their data for such purposes?
  • What actions are being considered/taken pending the proposed legislative reforms?

In some cases, buyers are engaging consultants to stress-test target cyber-security systems.

Key employment considerations

Employment related legal due diligence remains a key focus in consumer and retail M&A—and its scope may potentially expand in the medium term if the potential major reforms to the Fair Work Act (discussed in this separate Insight) pass into law and come into effect in FY24. Relevantly for retailers, among the proposed raft of changes is an amendment to the definition of casual employment and the creation of a new federal criminal offence for deliberate underpayments. The focus on employee matters (in particular, underpayment of employees) is not entirely surprising given that the retail sector is well known for having a highly casualised workforce,4 and because of the numerous proceedings initiated by the Fair Work Ombudsman against high-profile retailers over the past year (including Uniqlo Australia, Best & Less, Harris Scarfe and Super Retail Group).

Given this high-risk area, we are increasingly seeing bidders undertake underpayment analyses during the due diligence stage.

Next steps

Given the regulatory pressures and adjusting investor and consumer expectations, sellers looking to make a strategic divestment should consider taking early steps to shore up value in their business. Considering the confluence of legal considerations that affect retail businesses, we recommend that legal, risk and compliance teams of businesses in the consumer and retail space familiarise themselves with, and undertake any necessary gap analyses and uplifts for, pending reforms that will impact the retail sector (including those mentioned above in relation to data privacy and employment laws).

Similarly, it will be important for prospective bidders to understand the impact of pending applicable reforms on their liability risk exposure, to identify their key areas of focus for due diligence and to be clear on any potential regulatory approval processes that may impact the deal timeline.

Both sides of the deal table should factor in adequate deal-making time to resolve or mitigate any unanticipated complexities that arise within a shifting regulatory and macroeconomic environment.


  1. FY21 to FY23 data reported by MergerMarket. FY24 projection is based on a forecast of deal volumes based on MergerMarket reported data for July 2023 to November 2023.

  2. As reported by MergerMarket.

  3. As at close of trade on 30 November 2023.

  4. As at August 2023, the retail trade sector had the second largest share of casual workers (16%)—casual workers making up 35.9% of all workers in that sector: see Table 1, 'EQ05 - Employed persons by Industry division (ANZSIC) and Status in employment of main job, February 1991 onwards, 21 September 2023': <>.