Around the world, traditional brick-and-mortar retailers are grappling with serious challenges. These include sluggish economic growth in the countries where they have a presence, along with relentless pressure from online rivals as well as big-box and innovative specialty retailers. The ever-stiffening competition has eroded traditional players’ margins, prompting them to cast about for wellsprings of new growth and enhanced profitability.
An increasing number of companies are taking advantage of cash-rich balance sheets and a reviving market to drive growth through acquisitions and to capture revenue and cost synergies. In the last three years, the global retail sector has seen more than 150 M&A deals greater than $250 million in value—a 45% increase over the previous three years. However, the retail sector has unique characteristics that make M&A particularly challenging. Store footprints cannot be changed quickly, owing to lease obligations. Supply chains have taken on international proportions. Each company has its own pricing philosophy and models. Many have outdated IT infrastructure and applications. And given SKU proliferation, integrating IT and operations has become more complex than ever.
In this mature industry, merely snapping up companies isn’t enough to overcome those challenges and achieve the hoped-for growth. To better ensure that M&A deals deliver the desired outcomes, companies should master the complexities of the integration process in the preclose period. By properly planning for postmerger integration, companies can position themselves to reap faster and greater synergies immediately after closing—starting on day one of the new entity.