BusinessCorporate FinanceBeating gloomy predictions

Beating gloomy predictions

Retail acquisitions continue to defy the general trend of collapsing acquisition activity as booming consumer spending beats gloomy economy expectations.

Last week British retail group GUS snapped up Homebase, one of the country’s largest DIY chains, for £900m in a bid to broaden its operations.

Various surveys show that merger and acquisition activity this year is less than half of last year’s, but retail market deals are still taking place. As a result, KPMG corporate finance partner Richard Krajewski, believes the GUS buyout is a logical move, even though he was surprised by its sudden interest in the DIY market.

‘Across industries merger and acquisition transactions are well down.

But in the retail and consumer markets deals and take-overs are still happening. The consumer is still spending – with low interest rates it makes no sense to save money,’ he argued.

‘Every month consumer spending figures are better than expected.’ The Office for National Statistics last week said that retail sales volumes rose by 0.8% in October from September – up 6% on last year and ahead of analysts’ expectation of 5% increase.

Other examples of recent retail acquisitions are Tesco’s buyout of T&S, and Minerva’s bid to buy electronics and homeware group Allders.

The GUS acquisition follows the flotation of its highest profile operation, the Burberry fashion label in June this year. The deal intensified existing rumours of a pending Homebase flotation, but the company denied it had plans to launch the DIY chain on the stock market. ‘It’s in the realm of speculation,’ a GUS spokesman said.

Homebase’s 300 shops will become part of the GUS Argos Retail Group and continue to trade under its own name. Both groups were pursuing growth in the furniture and homeware market, and intend to combine their strategies to a total sales of £6bn and profit of £340m.

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