Will M&A be this year’s big trend in the fashion industry?

With stores closed and revenue having all but dried up, the problems facing these retailers became insurmountable and COVID-19 brought a wave of administrations along the UK high street. In the case of Arcadia, the struggles of numerous brands in their portfolio led to the collapse of the entire group.

However, despite their mismanagement, many of these brands remained iconic in the minds of generations of British shoppers. This, combined with their distressed state, has made them prime pickings for the likes of Asos and Boohoo, online retailers keen to expand their offering and customer base.

Rise of the e-commerce giants
The story of COVID-19 for most businesses has been one of struggle and suffering. However, for some that have proven particularly suited to the pandemic environment, it has been a time of unprecedented success. Chief among those have been e-commerce fashion retailers.

To take the UK’s two most prominent examples, fast-fashion retailer Boohoo revealed in January that its revenue had increased 40 per cent during COVID-19, despite a huge scandal surrounding its supply chain, while, in April, rival Asos revealed a 329 per cent increase in annual profits.

The core reason behind the success of e-commerce is obvious: with stores closed, shoppers turned to online retailers to fulfil their fashion needs. But the particular success of Asos and Boohoo is also partly down to deeper factors.

Prior to COVID, these retailers, and others like them, both pre-empted and helped to fuel a shift away from brick-and-mortar retail to online commerce. They achieved this by developing a modern, agile and social media-savvy approach to e-commerce, with plenty of well-chosen celebrity collaborations, that built a strong customer base among younger consumers.

This was complemented by their development of a diverse product range of well-known brands, in addition to their own clothing lines, that enabled them to build a broader market appeal. This meant that, when the pandemic hit, shoppers of all ages and tastes turned to the likes of Boohoo and Asos for all their fashion needs, whether that was running gear, loungewear or even the clothes they hoped to wear to the pub when lockdown eased.

They began drawing in new customers, alongside a strong existing base, as well as getting more regular business from shoppers who may previously have only used them occasionally.

This generated organic growth during the pandemic that, in turn, put these companies in a position to take advantage of the widespread distress afflicting the high street. Both Boohoo and Asos have made numerous acquisitions, which largely consisted of buying the assets and intellectual property of well-known high-street brands, further growing their offering while leaving the costly and bloated networks of stores behind.



With business distress soaring among high-street retailers, many of whom could yet suffer further from a winding down of government support, it seems clear that the likes of Boohoo and Asos will continue to target these well-known brands. Perhaps not targeting the businesses themselves, but looking to tap into what they mean to generations of British shoppers.

Dressing up in the stay-at-home economy
Some of fashion’s highest-profile victims of the COVID-19 pandemic have been those with a narrow product offering that was simply not suited to lockdown. Operators specialising in businesswear and occasionwear, in particular, have seen demand dry up with events cancelled and millions working from home.

As with many high street retailers, a sudden lack of demand exacerbated existing issues for these specialty fashion brands, many of whom had large brick-and-mortar estates which they prioritised over online retail.

With employees working from home across the UK and meetings and conferences forced to take place online, demand for businesswear fell dramatically.



Similarly, as social distancing and lockdown prevented all but the most limited forms of socialising, events from weddings, to graduations, to a simple night-out were cancelled. For brands focused on clothing for such events and occasions, this proved predictably disastrous.



As with the high street retailers snapped up by the likes of Asos and Boohoo, many of these brands had a strong market presence and customer base pre-COVID. If acquired and restructured to be more agile and modern, they could still prove viable and attractive targets.

This is particularly true of occasionwear brands, which should see a considerable sales boost if lockdown eases on schedule over the summer. Delayed events such as weddings will flourish and a general pent-up desire to socialise will take the nation by storm after more than a year of lockdown.

However, while a large number of workers should ultimately return to offices and business events as the pandemic recedes, predictions that widespread homeworking will continue post-COVID could spell long-term bad news for businesswear brands.

From an M&A perspective, this could leave many as prime targets for distressed acquisitions, perhaps for online retailers looking to add a business element to their diversified offering. However, we could also see historic, well-capitalised brands that have weathered the crisis move to diversify their own offering through acquisitions as they look to improve their resilience going forward.

International giants ready to pounce
As with many other sectors, bigger international companies in the fashion sector will likely have been waiting out the COVID-19 crisis and may react to the “new normal” by doing deals as the crisis recedes.

A key driver of such deals will be a desire among big companies to strengthen their offering, and expand their market share. As the pandemic begins to ease, there could be an increase in bigger brands seeking acquisitions and mergers in order to achieve these goals.

Similar moves have been seen in the aftermaths of other crises, such as the financial crash in 2008, when Gap spotted a growing trend towards athleticwear and moved to acquire activewear provider Athleta.

Such trends could similarly emerge from the COVID-19 pandemic. Loungewear has been an obvious winner with millions stuck at home, but the pandemic has also seen growing numbers take more interest in their own fitness (shown by the popularity of jogging and exercise apps during lockdown). Big fashion companies that do not have a developed offering in these areas will have spotted such trends: acquisitions could prove the most direct way to address what they are lacking.

Also, with the economic crisis caused by COVID-19, some larger operators may seek to diversify their offering to include cheaper brands, with economic turmoil usually leading to consumer tastes shifting towards value for money.

There are several factors that could help to facilitate dealmaking among bigger companies. Firstly, a mutual interest in gaining complementary services could prompt mergers between companies with different offerings. Secondly, some could look to take advantage of particularly attractive distressed opportunities. Thirdly, big fashion companies could fund acquisitions through private equity investment.

The role of private equity
Private equity and fashion have longstanding ties, with many private equity firms drawn to fashion companies as solid investment vehicles. In a 2019 Deloitte survey of 60 leading private equity houses, fashion was the sector that most were interested in. That was also the case in 2017 and 2018.

With private equity houses sitting on record levels of cash having largely paused their dealmaking during the pandemic, fashion could continue to be a leading sector for them to invest in. With this kind of capital behind them, bigger fashion companies could be very well placed financially to target further deals.

There have already been some major signs of private equity looking to invest in fashion as confidence grows that vaccines represent a route out of the pandemic. One such deal saw Dutch firm Exor Group take a 24 per cent stake in luxury shoemaker Louboutin for around £467.2 million.




Unlike some sectors, fashion did continue to see dealmaking during the pandemic. However, this was largely confined to distressed acquisitions. While such deals are likely to continue, the easing of lockdown restrictions and, potentially, the slowing of the pandemic, should see more diverse dealmaking occur over coming months.

With socialising and events set to return to the agenda for millions in the UK, battered fashion brands will represent an even more attractive investment to those looking to take advantage of persistent business distress.

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