PwC: Retail M&A Deals Fell 19 Percent in 2019

PwC: Retail M&A Deals Fell 19 Percent in 2019

ABI Bankruptcy Brief

January 30, 2020

ABI Bankruptcy Brief

PwC: Retail M&A Deals Fell 19 Percent in 2019

A new report from PricewaterhouseCoopers found that retail's merger and acquisition deal volume fell 19 percent between 2019 and 2018, with 465 total deals last year, reported. In dollar terms, the report found that the total value of deals in 2019 fell 28 percent, to $27.8 billion, compared to the prior year. PwC attributed the "dwindling M&A activity" for the year overall in retail on a host of factors, including e-commerce disruption, growing competition from resale and rental, difficulties in keeping physical retail relevant, the challenges in managing inventory and merchandise flow, rising labor costs and trade disputes. And the already relatively sluggish deal pace in 2019 would have yet been lower if not for the fourth quarter, which saw a spike in M&A activity and accounted for 67 percent of retail investments for the year, according to PwC. Q4 hit the highest number in quarterly value since Q2 of 2018, PwC said. The average deal size also got a 220% boost in the back half of the year from the Tiffany-LVMH "megadeal." At $16.2 billion, that deal accounted for 58 percent of all retail deals in 2019.

Opinion: Borden Dairy’s Bankruptcy and the Continued Decline of the Milk Industry

Borden Dairy Co. filed this month for bankruptcy protection, but it’s not the first big milk producer to take this step in the past year: Dean Foods Co. filed for bankruptcy in November. This is sad news, but it is also an opportune time to consider the little-appreciated ways that capitalist enterprise and government regulation went hand-in-hand to create the modern milk business that Borden, founded in 1857, once represented. Gail Borden patented a method for condensing milk using a vacuum process, but his company originally struggled. Borden’s fortunes changed on a single order during the Civil War of 500 pounds of condensed milk, which led to many more. In the late 19th century, most city-dwellers continued to buy conventional milk, not the safer condensed stuff, and infant mortality rates remained at eye-popping levels. Only when the state and city governments began cracking down on unhealthy dairies and other abuses did things begin to change. Large vertically integrated companies like Borden, which had already instituted rigorous quality-control programs, could readily meet the new regulations in a way that smaller, independent dairies and distributors could not. As milk became safer and cheaper, it became the drink of choice. When combined with a host of other government initiatives — New Deal subsidies and price supports, school-lunch programs and others — big milk became further entrenched in the nation’s diet. But then, beginning in the 1970s, milk consumption began the slow, steady decline that helped fuel the Borden bankruptcy. The conventional explanation is that Americans started consuming other drinks: fruit juices, for example, and eventually, milk substitutes. Regulation may have played a role here, too. The federal government introduced food labeling in 1973, and a growing number of products eventually were forced to confess their amounts of healthy and unhealthy contents. Guidelines established in 1977 targeted a few villains, foremost among them fat. The milk industry’s pride of place in the nation’s diet is a function of regulation. But so, too, may be its long, inexorable decline.

Big Credit-Reporting Changes Sought in Bill Passed by U.S. House

Credit-reporting companies would have to remove negative data more quickly and give consumers more tools to dispute information they believe is inaccurate under a package of bills passed by U.S. lawmakers yesterday, Bloomberg News reported. The legislation, which cleared the Democrat-controlled House on a 221-189 vote, calls for major changes in business practices by Equifax Inc., Experian Plc, TransUnion and rival firms. It would also expand the Consumer Financial Protection Bureau’s power to validate credit scores and prohibit certain practices used to calculate them. Rep. Maxine Waters (D-Calif.), who chairs the House Financial Services Committee, has made reform of credit-reporting companies a priority as part of a broader effort to improve credit access for minority and lower-income consumers. The legislation faces long odds of passage by the Republican-controlled Senate, where some majority lawmakers say that the government shouldn’t get involved in managing a private-sector process. The credit-scoring companies came under public scorn and lawmakers’ scrutiny after a massive data breach at Equifax in 2017 compromised the personal data of almost half the U.S. population. The company agreed last year to pay as much as $700 million to resolve federal and state investigations into the cyberattack.

Fraudulent Social Security Calls Now No. 1 Phone Scam, According to Senate Report

An annual report from the Senate Aging Committee released yesterday found that Social Security impersonation calls are now the nation’s most-reported phone scam, The Hill reported. Fraudulent IRS calls were also the most prevalent scam reported in the previous five years. The typical scam involves a robocall from someone impersonating the Social Security Administration (SSA) and asking for the recipient’s personal information. The calls resulted in scammers bilking Americans, mostly seniors, for $38 million last year, according to the Senate report, citing the Federal Trade Commission. SSA Commissioner Andrew Saul and Inspector General Gail Ennis, both confirmed in 2019, told members of the Senate Special Committee on Aging at a hearing Wednesday that they have made combating the scams a top priority. “The magnitude of this problem caught us off guard,” Saul said. “Americans trust our agencies, and we do not allow swindlemen to erode that trust.” Saul stressed that educating Americans about which calls are suspicious is the best way to tackle the problem. He said that now when anyone visits the agency’s website, they’ll see a banner linking to tips on how to avoid the scam. The SSA and Office of the Inspector General partnered to create an online reporting forum so they can investigate and stop the scammers. They said they have received more than 115,000 reports of fraudulent calls since the forum went live in mid-November.

Worried Reporters Make a Plea: Please Buy Our Paper

As hedge funds take on a greater role in newspaper chains, journalists at the Chicago Tribune and elsewhere are sending out an S.O.S., the New York Times reported. After having bought up roughly 32 percent of Tribune Publishing in recent years, Alden Global Capital is the company’s largest shareholder. It can buy more Tribune Publishing stock as soon as July. This month, the company asked journalists at newspapers across the country to volunteer for buyouts. In response, some Chicago Tribune journalists are undertaking efforts to have wealthy Chicagoans purchase the company away from its private-equity owners. Overall, journalists are wary of Alden because of its cut-to-the-bone management strategy. In 2018, a group of writers and editors at the Alden-owned Denver Post published a special package devoted to attacking the company, which had enacted deep staff cuts at the paper. It is certainly not news that the newspaper business is in trouble. Its onetime profit center, print advertising, has declined sharply as readers increasingly prefer to get the news on screens. The finance industry, looking at newspapers as distressed assets with hidden value, has swooped in, scooping up struggling publications, cutting their staffs and wringing them for profits. Journalists in other cities have made moves to protect their jobs — by working to form unions, seeking out new ownership or putting a spotlight on private-equity's actions in their newsrooms.

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Gavin / Solmonese




New on ABI’s Bankruptcy Blog Exchange: Regulators Propose Volcker Rule Changes to Allow VC Stakes

In another rollback of the bank trading ban, federal agencies have unveiled a plan to allow financial institutions to invest in multiple companies through certain fund structures, according to a recent blog post.

To read more on this blog and all others on the ABI Blog Exchange, please click here.

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