Retail and consumer IPOs, M&A activity slowing amid inflation: KPMG

Supply chain headaches, surging interest rates and the war in Ukraine have combined to stifle IPOs and deal-making in the consumer and retail sectors so far this year.

The total number of consumer and retail deals in the first quarter tumbled 31.9% from the prior period, global consultancy KPMG said in a report released Wednesday. Deal volume shrank 39.8%.

That marks somewhat of a stark reversal from recent trends, when the number of deals involving U.S.-based consumer and retail companies nearly matched pre-pandemic levels.

The boom last year was fueled, in large part, by e-commerce growth in retail and a focus on health and wellness trends, KPMG said. In 2021, Levi Strauss & Co. bought Beyond Yoga, Wolverine World Wide acquired Sweaty Betty, and Crocs purchased Hey Dude. Retailers such as Allbirds, Warby Parker, On Running, Lulu’s, Brilliant Earth, ThredUp, Rent the Runway and A.K.A Brands — just to name a few — all started trading on public exchanges.

At the start of the year, consumer and retail industries had been poised to see a continued rapid expansion in deals and initial public offerings, said Kevin Martin, who heads KPMG’s U.S. Consumer and Retail division. But a volatile stock market and uncertainty about near-term consumer spending have given executives and investors pause, as has a span of underperformance from so-called direct-to-consumer darlings’ stocks relative to the broader market, including those of Warby Parker and Allbirds.

While Martin doesn’t predict deal activity is poised to pick up rapidly this year, he does see more consumer brands, retailers and private equity businesses setting their sights on 2023 instead. He expects the pet category, including pet-food makers, to be a focal point, along with the consumer alcohol sector.

Some retailers, meanwhile, could be pressured to sell off parts of their businesses. A few highly watched deals could come sooner rather than later. For example, home goods retailer Bed Bath & Beyond is reportedly in the midst of considering offers for its BuyBuy Baby business, including one from the private equity firm Cerberus Capital Management. Calls also are increasing for Gap to split its faster-growing Athleta division from its other brands.

“Companies are still pressing ahead as is — pedal to the metal in some cases — with the idea that by the time 2023 rolls around some of the concerns that we’re observing now globally will be moved on from them,” Martin said. “There will be pent-up demand.”

Retail and consumer businesses that have been reported to be pursuing an IPO include the online sneaker exchange StockX, Rihanna’s Savage X Fenty lingerie line, yogurt maker Chobani, e-commerce marketplace Zazzle and furniture brand Serena & Lily. Consumer private equity giant L Catterton also is reportedly considering an IPO.

Representatives from these businesses didn’t…