NY Retail Conference Seminar Hosted by Planalytics and HRC AdvisoryNovember 13, 2012
The retailing sector is undergoing a profound change, making retail M & A transactions more difficult than ever to price and making retail companies more challenging than ever to grow and operate profitably, post-acquisition.
The featured topics at the conference were the following:
-The general state of retailing today and how M & A is being affected.
-Pre-acquisition due diligence with a look at the non-financial variables as intensely as the financial statements.
-The wants and needs of retail lenders in order to complete transactions.
-Hidden opportunities in pre-acquisition due diligence to reduce enterprise cost and enhance margins post-closing.
-Ways to seek out performance and profit enhancing opportunities in virtually every retail operation.
-Two panels were held at the event.
Panel one focused on pre-acquisition financing and due diligence and included leading experts such as Kevin Vannucci, Partner at McGladrey LLP, David Berman, Senior Partner at Riemer & Braunstein; John Buck, Principal at Versa Capital; Michael Pizette, Chief Credit Officer at Crystal Financial and Greg Rubin of HRC Advisory (Formerly SD Retail Consulting).
Panel 2 focused on post -acquisition value add opportunities and internal operations and included Antony Karabus- CEO, HRC Advisory; Michael McNamara SVP at MasterCard/ Pulse; Helaine Suval – CEO Suval Consulting; Nikhil Thukral – Partner at Catterton Partners; and Ken Walker – CEO the Walker Group.
HRC Advisory CEO Antony Karabus hosted the second panel and the following provides some highlights of his comments. A full transcript of both sessions is available at www.acgnewyork.com .
I am very pleased to be here today to moderate this exceptional panel of retail professionals and investors, each of whom brings a different perspective to the important topic of Post-Acquisition Value Creation from Internal Operations and Value Oriented Initiatives: We have all seen the wide disparity in the success of various retail transactions over the last several years. Virtually every transaction is precede by a glossy management presentation/ confidential information memorandum prepared with the letterhead of well-respected Investment Banks —but why do some transactions succeed in creating enormous accretive value while others achieve the exact opposite. Just to use a few well known examples:
-Macy’s acquisition of May Company
-The Mervyn’s acquisition by two leading financial sponsors
-A & P’s acquisition of Pathmark-
-NRDC’s acquisition of Lord & Taylor and HBC, and subsequent disposition of Zellers
-Super Valu’s acquisition of Albertsons
-ESL’s acquisition of Kmart and then Sears
-Lastly, Dress Barn’s transformation from mono-brand into ascena retail,which now owns Dress Barn, maurice’s, Justice, Lane Bryant and Catherines.
No doubt they all had well written confidential information memoranda, but there so many strategic and tactical reasons why the value disparity between these deals are so profound…It all comes down to ensuring clarity of context regarding what each buyer’s strategic objectives are that they are attempting to enable by executing the particular transaction, and how they will make it better for the customer.
See Full Transcript at www.acgny.com
In conclusion, the key success factors I believe are critical are the following:
Never justify a deal largely based on cost savings – you will always be disappointed as cost savings will always take longer and are hard to achieve.
Always ask how the transaction will allow for better customer service, increased spending from customer and overall customer loyalty. Success always comes down to achieve profitable sales growth no matter what else you achieve.
Always have clarity upfront that this is a growth story (i.e. a roll out of a new geography or similar) and if so, are you willing to invest the right resources to enable the growth and, do you have the systems and people in place to achieve this growth, or is it an operational improvement thesis.
Or, is this a strategic transaction to achieve market leadership and critical strategic objectives (such as Macys), a deal where the non-core assets can be sold off for a significant percentage of the deal cost (e.g. NRDC selling Zellers’ leases to Target Canada) to allow for significant focus and investment on the go forward assets.
The leveraging of a target which was “sleepy” or a “corporate orphan” or the prior owners did not have the fortitude to make the investments needed to achieve the significant potential available growth in the sector.