The Glade 4.0

NEW YORK (CNNMoney.com) -- After cutting back on expenses and making some hard choices in the recession, it looks like it's time to go shopping.

At least that's the attitude of the nation's merchants. After a long dry spell, and restructuring moves that left them rich with cash and itching to bag some bargains, stores and sellers are shopping around for their rivals.

"These deals will help the better retailers become more innovative ... and in tune with what consumers want," said Love Goel, CEO of GVG Capital Group, a private equity firm that focuses on retail.

Retailers took the spotlight this month when No. 1 mall operator Simon Property Group (SPG) made a $10 billion all-cash bid for its troubled rival, No. 2 mall operator General Growth Properties (GGP). General Growth spurned Simon's bid, but that hasn't deterred Simon's interest.

In addition, Walgreens (WAG, Fortune 500), the largest U.S. drugstore chain, announced it was buying New York City-based rival Duane Reade in an all-cash offer of $1.1 billion.

Cathy Jaros, managing director of Amherst Partners, an investment banking firm, noticed a pick up in merger and acquisitions (M&A) late last year, including Kraft Foods' (KFT, Fortune 500) nearly $20 billion deal with Cadbury.

"Companies have decided to get their head out of the sand and that life goes on," said Cathy Jaros, managing director of Amherst Partners, an investment banking firm.

Spotting targets
Ken Lee, who heads the M&A practice at consulting firm A.T. Kearney, said the recent recession has created two buckets of retailers -- those who restructured their business to thrive and those who restructured to survive.

"Those who restructured to thrive are in a better position to grow and to do it through acquisitions," he said. The survivors, he said, are more vulnerable to being acquired.

Industry experts also say that cash-rich retailers aren't as reliant on private equity firms, as they have been in recent years to fund the mega-deals.

"Some corporations are coming out of the recession with stronger balance sheets and the cash to make strategic acquisitions on their own," said Justine MacFarlane, director in the retail practice at AlixPartners, a global business advisory firm.

MacFarlane expects the biggest volume of deals will happen among "middle market" retailers, or companies with sales of up to $2 billion.

GVG Capital's Goel highlighted four trends that could drive deals.

He said "orphan" divisions in large conglomerates, "divisions that have fallen out of favor with their parent company," are good targets.

InterActive Corp., headed by CEO Barry Diller, could likely shed some of its retail assets, Goel said.

"There are also companies that should not be public," he said. "These buyout targets typically have cash flow of less than $25 million (and) have growth potential, but are spending too much money just to remain public."

He cited Bluefly (BFLY), an online seller of designer clothing and accessories, and teen clothing chain Delia's (DLIA) as examples.

"A private equity partner could provide the money and expertise to grow these chains," he said.

Another target group is well-run, private companies that need more money to support their growth.

"These are companies with $100 million to $1 billion in sales," he said, including Dots, an Ohio-based clothing chain with 400 stores, and Bluestem Brands, an Eden Prairie, Minn.-based merchant and online seller.

Goel also said companies that simply have too much debt, typically owned by private equity firms, are prime takeover candidates.

"Companies like Brookstone and Oriental Trading have strong brands but their businesses have suffered from unrealistic expectations and too much overhang," he said.

Looking at her sectors, Amherst Partners' Jaros said many large companies are looking at ways to attain national distribution of their goods.

"Refrigerated foods companies tend to be regional players. So a big foods company can acquire these type of regional players to get a national footprint," she said.

Better for shoppers
"Through mergers and acquisitions, companies can cull overlapping stores and underperforming stores from their portfolio," AlixPartners' MacFarlane said.

What's left are better-funded stores that have a reason to exist and are selling things that consumers want to buy.

If these deals help consolidate the U.S. retailing industry, Goel and others say it's a positive for consumers.

"The bad retailers are already dying. The economy has killed them," he said.

In comic strips the person on the left always speaks first. - George Carlin

So less competition is good for consumers. That makes sense. An economic oligarchy of mega-merchants will naturally lead to better prices, not price-fixing. For sure. Also I bet this means more jobs somehow too.

/facepalm

This is why recessions are a good thing. Good, strong companies, buy up the dead weight, or the dead weight goes out of business. It opens up the market for new businesses.

Also, too much competition is very bad for the economy, as it drives prices down too low. It's self correcting though, low prices will drive some of them out of business.

Also, Hopwin, if you're right and low competition drives prices up, guess what will happen? More people will get into the business to get some of that money. That will drive prices back down.

All is well.

I have to agree with Arathain here. Less competition also drives people into creating small businesses. This creates more intelligent competitors who keep the large corporations on their toes.

In comic strips the person on the left always speaks first. - George Carlin

This model doesn't seem to be standing up to the test of Walmart.

This model doesn't seem to be standing up to the test of Walmart.

And Wal-Mart isn't exactly known for driving prices up.

In comic strips the person on the left always speaks first. - George Carlin

They also aren't known for having the highest quality goods. As a consumer if my only option was Walmart I would be sorely disappointed, fortunately we don't have a Super Walmart grocery store around here to kill off the other stores.

So what? Aside from the fact that Wal Mart caries mostly the same goods any other store would carry anyhow, first you were complaining about price fixing. You're moving the goalposts here, now it's quality goods.

In comic strips the person on the left always speaks first. - George Carlin

Maybe I am willfully ignorant but I don't see any boon to consumers any where in any of this.

My complaint is actually many things, first less companies means less jobs in general and those that remain pay less because workers have no where else to go. Second, less competition means subpar goods or inflated prices (sometimes both). Third, less competition means a smaller selection of goods available. Fourth, less companies means more vacant properties which depresses the commercial real estate market.

Maybe I am willfully ignorant but I don't see any boon to consumers any where in any of this.

Arathain already pointed out that fewer companies means others can come in and offer competition.

Moreover, more companies is not necessarily more competition and fewer is not necessarily less, nor does it necessarily result in subpar goods (retail companies rarely manufacture goods) nor does it necessarily mean less selection as again, one company can carry more than one make of the same item.

I can't be the only one who has actually been to a number of small towns where WalMart does indeed have a monopoly on a number of goods. (sporting goods, toys, music, electronics, etc.). But the real problem is it's monopsony power. WalMart can dictate what a company produces, what it will sell for, where else they can sell the product, what the packaging should look like, how it will ship, and even what software they use to track the shipping.

It does not necessarily mean less jobs since the remaining companies have more options for expansion, nor does it necessarily mean lower wages since they are still competing with each other.

As for real estate, other businesses can move into vacant buildings.

You seem to think that a consolidation of businesses now means some sort of static monopoly among those remaining, which is far from the case.

In comic strips the person on the left always speaks first. - George Carlin

[quote=http://meganmcardle.theatlantic.com/archives/2009/07/wal-mart_and_health_insurance.php]I can't be the only one who has actually been to a number of small towns where WalMart does indeed have a monopoly on a number of goods. (sporting goods, toys, music, electronics, etc.). But the real problem is it's monopsony power. WalMart can dictate what a company produces, what it will sell for, where else they can sell the product, what the packaging should look like, how it will ship, and even what software they use to track the shipping.

If you close a Circuit City next door to a Best Buy then not only do you lose the jobs in the Circuit City but you also lose all the jobs that supported that store: admin, management, supply-chain implications, etc.

If it were that simple then there would be no vacant storefronts anywhere.

At some point an industry giant has such an advantage in terms of economies of scale that small business can no longer move into the market as the entry cost rises geometrically.

Facism is not a school of thought, it is a racial slur.

Hopwin:

Can you do me a favor?

In comic strips the person on the left always speaks first. - George Carlin

That sounds ominous, what?

Facism is not a school of thought, it is a racial slur.

Please, never quote Megan McArdle as a credible economic source.

In comic strips the person on the left always speaks first. - George Carlin

I dislike many companies that try to force people into part itme only wages but its not something that is Walmart specific.

Hopwin seems to be railing against Walmart for continueing to strive to offer the lowest prices possible to its customers. However I feel that if Walmart strived to offer the highest prices possible to their customers he would complain about that behavior as well.

Whats wrong with ensuring low prices? The voters (consumers) overwhelming support it. If you don't want to contract with Walmart because you don't want them in your books, then don't - as people have already decided not to. Free choice is bad because some people make decisions I don't like? - What?

In comic strips the person on the left always speaks first. - George Carlin

Except that Walmart shoppers disagree with you every day by continuing to shop at Walmart. It may not be of benefit to you but they obviously disagree.

In comic strips the person on the left always speaks first. - George Carlin