Global Hogan Lovells team hosts panel on M&A trends for retail industry leaders

Consolidation trend continues

Throughout the industry, consolidation continues. In addition to traditional M&A, strategic partnerships and joint ventures are gaining traction. These partnerships and JVs allow companies to enter new geographic markets or lines of business, taking advantage of the expertise and know-how of a partner. Joint ventures can also help avoid increasing headcount and consolidate results. However, not all are successful; a significant number fail due to unforeseen circumstances, lack of proper due diligence, or misaligned incentives.

Joint ventures as a risk reduction strategy

Joint ventures are generally viewed as a way to reduce participants' risk—they are not permanent, and the respective capital contributions are less. However, linking your name and reputation to an entity you don't control is inherently risky, especially in the retail space where brand is everything.

Renegotiation and flexibility: Keys to success

50% of joint ventures fail, and successful joint ventures have often been renegotiated to address misalignment. It is crucial to set business expectations and leave flexibility to renegotiate terms from the outset.

Context matters

Economic, political, and security risks in Mexico, coupled with changing demographics in the U.S., are leading to investment by Mexican companies in the U.S. retail industry. Uncertainty created by recent constitutional and labor reforms in Mexico is driving Mexican companies to diversify geographically. Similarly, the need to explore new markets to grow and build brand reputation in the Hispanic market can drive U.S. retailers to launch their presence in Mexico or Canada.

Data privacy takes center stage

Across Canada, the U.S., and Mexico, data privacy is a key consideration in retail transactions. Ownership of databases and restrictions on the use of databases for marketing and advertisement need to be factored in when launching a new business. Retailers that market to children need to pay even more attention to rules on processing minors’ data.

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This tri-national panel also involved discussions on the geopolitical landscape’s influence on M&A activity, due diligence complexities in today’s highly regulated environment, foreign investment, and labor and employment considerations.

For more information, please contact Kelly Tubman Hardy and Federico De Noriega Olea.

Authored by Kelly Tubman Hardy and Federico De Noriega Olea.