Skip to main content
BoF Logo

The Business of Fashion

Agenda-setting intelligence, analysis and advice for the global fashion community.

5 Fashion M&A Predictions

Private equity firms, mega retailers and strategic groups that emerge from the crisis with cash to spare will be on the hunt. But what will they be buying?
Source: Shutterstock
  • Cathaleen Chen

NEW YORK, United States — The fashion industry is bracing for a wave of consolidation as brands weakened by the pandemic will likely be snapped up by stronger rivals and private equity firms.

Experts say the frenzy of deals, which could kick off as soon as the lockdowns start to ease, has the potential to reshape the retail landscape for years to come. Private equity firms and vulture funds will have their pick of brands faced with plunging sales and looming debt payments. Venture capital-backed start-ups are seeing their valuations plummet, making them attractive targets for the established brands they were hoping to disrupt. Retail giants like Amazon, Walmart and Target, which have seen sales surge during the pandemic, will grow even bigger.

“The cash is still out there,” said Douglas Hand, a fashion lawyer specialising in transactions and partner at Hand Baldachin & Associates LLP. “And firms holding a lot of money in a downcycle can be very opportunistic.”

That’s all in the future, however. For now, the market for deals is frozen just like the rest of retail. In March, there were four deals totalling $15.6 million in the fashion, apparel and accessories sector in the US, compared to nine deals totalling $376 million a year ago, according to data compiled by Dealogic.


Firms holding a lot of money in a downcycle can be very opportunistic.

As of April 13, no deals in this space have been made this month. But that could soon change. Companies with the resources to buy will be all the more incentivised to strike deals during an economic downturn, according to a 2019 report from Boston Consulting Group. Analysing 51,600 deals made over the past four decades, the report found that deals made during a weak economy typically outperform those facilitated during a strong economy in terms of return on investment.

Here’s how fashion dealmakers and analysts expect the coming months to play out:

1. The quest for vertical integration will drive deals.

If a strong e-commerce game wasn’t already essential to a brand’s success before, it certainly is now. Even after stores reopen, many consumers are likely to continue to shop online.

Companies that don’t have robust online operations already will need to acquire one, fast.

“This will mark the second generation of e-commerce — the end of the beginning of e-commerce,” said retail consultant Doug Stephens.

Direct-to-consumer brands are one way in. These digital natives are well known to consumers online, thanks to years of heavy spending on Instagram ads and a focus on direct e-commerce sales. But many have failed to turn a profit, and in a recession won’t be able to count on an endless flow of venture capital to sustain themselves.

This will mark the second generation of e-commerce.

This will be a buying opportunity for retailers, manufacturers and private equity investors alike, especially considering that the price tag for equity will be lower than ever, according to Elsa Berry, founder of luxury M&A advisory firm Vendôme Global Partners.


Offline, brands and retailers will pair up to avoid becoming collateral damage as the wholesale system falters. Surviving multi-brand retailers may buy brands to gain exclusive access to desirable products (Farfetch was already headed down this road before the pandemic, with its acquisition of New Guards Group, which backs brands like Off-White and Heron Preston.)

A strategic group of brands — or even a strong single brand — could also be inclined to acquire an iconic multi-brand retailer out of bankruptcy, betting they can manage it better, said Billy Susman, managing director of financial advisory firm Threadstone, which focuses on consumer industries. (LVMH, for instance, already owns the famous Parisian department store Le Bon Marche and La Samaritaine, the right-bank department store the group has spent the last 15 years and hundreds of millions of euros renovating.)

“If I were a wholesale [brand] that was 100 percent dependent on department stores, but I’m good at what I do,” he said. "I could rethink my model.”

2. Licensing companies will clean up.

Brand management firms like Authentic Brands Group, Global Brands Group and Marquee Brands were already big winners in the retail apocalypse.

In the past year alone, ABG, backed by private equity firm Blackstone Group, acquired the IP of Barneys, Forever 21, Volcom and Sports Illustrated. Its business model is based on buying brand names for cheap and then licensing them to vendors and manufacturers. Unlike retailers riddled with excess merchandise season after season, ABG doesn’t hold inventory. Its profits come from royalty fees exclusively.

Now, it has the chance to apply this lucrative model onto distressed brands like Ann Taylor under parent company Ascena Retail Group, J.Crew, L Brands and a handful of others — companies all facing imminent maturities on their debt and could subsequently declare bankruptcy as the economy continues to contract amid the pandemic.

3. The big boxes will get bigger.


While department stores and clothing brands were forced to close their stores, big-box retailers like Walmart and Target, which sell groceries and household essentials, have stayed open and even seen an uptick in sales.

Coming out of the crisis, they'll be flush with cash while rivals are struggling to survive.

These chains are also major apparel sellers and have been building out their own private labels in recent years. Coming out of the crisis, they’ll be flush with cash while rivals are struggling to survive. Expect them to use this to their advantage, analysts say.

After Walmart purchased in 2016, it began to collect various digitally native startups, including Bonobos, Modcloth and Eloquii in an effort to build up its own online offerings for younger, more urban consumers. Last year, however, reports emerged that the Arkansas-based retailer was in talks to sell some of these assets as they remain unprofitable.

The retailer could see the current climate as a good time to try again, according to one investment banker who has worked on deals involving the super-store chain representing the acquired brands. “It doesn’t have to be DTC. They have a lot of options, even in the fashion space,” he said, pointing to plus size clothing brand Ashley Stewart, which Walmart could streamline with Eloquii. “They can pick some of these [ailing] brands and move them in-house.”

Even a department store like Kohl’s could be an acquirer once the crisis ends because many of its peers won’t survive, he added. “I know Kohl’s has been wanting to do a deal for some time now.”

Target, meanwhile, has been adding to its assortment of private-label brands. It’s also an early wholesale adopter of buzzy direct-to-consumer brands like Harry’s and Casper. Low valuations in this space will be a chance for Target to strengthen its position on the digital and vertical manufacturing side.

4. Private equity will double down.

The most well-capitalised investors are private equity funds, able to invest hundreds of millions of dollars to scale mid-sized businesses into global powerhouses. Look no further than Carlyle Group’s acquisition of Supreme in 2017, or Permira’s purchase of Reformation last year.

While these PE investors may not see value in every distressed retailer, those with strong brands and customer loyalty — alongside an affordable recessionary price tag — will no doubt pique their interest.

When they identify the right targets, private equity firms will enter the sector in the form of rescue financing and liquidity infusions in the next couple of months. On the DTC side, for instance, private equity is an option for startups hurting for cash.

“Remember that even the biggest VC funds are tiny compared to private equity funds,” said Alex Song, founder of digital brand platform Innovation Department and seed investor. So if a brand is looking for a capital infusion and its existing venture investors hesitate, a private equity player could swoop in and wipe out the entire equity stack, Song explained.

5. Amazon has a bigger opportunity than ever to finally penetrate the luxury fashion space.

Amazon has been looking for a way into the luxury sector for years and is reportedly developing a new platform to sell high-end fashion.

The e-commerce giant has been known to buy its way into markets it can't crack on its own — the acquisition of Whole Foods in 2017 is one example. Amazon would have its pick of ailing luxury retailers if it were so inclined. Neiman Marcus is considering a bankruptcy filing as its sales plunge, Bloomberg reported in March, and financial experts have long speculated that Saks Fifth Avenue — under a newly private Hudson's Bay Co. — would make sense as an Amazon buy.

Amazon could also look into online multi-brand players such as MyTheresa, Net-a-Porter or Matchesfashion. Without real estate assets, these companies would be cheaper to acquire but offer a highly engaged customer. (For more than a year, MyTheresa owner Neiman Marcus has jumped through hoops trying to spin off the luxury e-tailer as a separate entity to protect its value against the ailing parent company.)

To fully break into the luxury sector, “Amazon already has 198 pieces of the puzzle and Neiman Marcus would have the last two pieces to help them accomplish what they’ve tried for a long time,” said Hand, the fashion lawyer.

The impetus for the transaction is there.

As the spread of coronavirus begins to slow in the US, uncertainties around the market will clear and consumers will shop again. Then, M&A will inevitably resume.

“We’re active on several projects right now, preparing assets to go to market,” said Vendôme’s Berry. “We’re not sure if it’ll be May 1 or June 1 but we’re definitely going to market, and there seems to be a broader profile of investors right now, including pent-up demand in private equity and private families with wealth.”

“The impetus for the transaction is there,” she added. “I’m talking about fundamental shifts in consumer trends — and that’s not going away … Buyers are mapping out their ideal acquisition targets right now.”

Editor's note: An earlier version of this story included the retailer Vince is among the companies facing imminent maturities on its debt. This is not accurate. Vince' term loan does not mature until August 2023.

We’re tracking the latest on the coronavirus outbreak and its impact on the global fashion business. Visit our live blog for everything you need to know.

Related Articles:

2020’s Top M&A Targets in LuxuryOpens in new window ]

The Pros and Cons of Private EquityOpens in new window ]

Why Private Equity Is Still Chasing FashionOpens in new window ]

© 2024 The Business of Fashion. All rights reserved. For more information read our Terms & Conditions

More from Retail
Analysis and advice from the front lines of the retail transformation.

Op-Ed | How Long Can Adidas Surf the ‘Terrace’ Trend?

As a push to maximise sales of its popular Samba model starts to weigh on its desirability, the German sportswear giant is betting on other retro sneaker styles to tap surging demand for the 1980s ‘Terrace’ look. But fashion cycles come and go, cautions Andrea Felsted.

How Rent the Runway Came Back From the Brink

The rental platform saw its stock soar last week after predicting it would hit a key profitability metric this year. A new marketing push and more robust inventory are the key to unlocking elusive growth, CEO Jenn Hyman tells BoF.

Why Esprit’s Ambitious Rebrand Fell Short

The company is in talks with potential investors after filing for insolvency in Europe and closing its US stores. Insiders say efforts to restore the brand to its 1980s heyday clashed with its owners’ desire to quickly juice sales in order to attract a buyer.

view more

Subscribe to the BoF Daily Digest

The essential daily round-up of fashion news, analysis, and breaking news alerts.

The Business of Fashion

Agenda-setting intelligence, analysis and advice for the global fashion community.
The Business of Beauty Global Awards - Deadline 30 April 2024
© 2024 The Business of Fashion. All rights reserved. For more information read our Terms & Conditions, Privacy Policy, Cookie Policy and Accessibility Statement.
The Business of Beauty Global Awards - Deadline 30 April 2024