Distressed retail M&A: Opportunistic or strategic?

Retail has been one of the sectors most notably impacted by the one-two punch of COVID-19 and the UK’s economic downturn of the past two years. Of the retailers that survived the pandemic, many had seen a major fall in revenue and profits and were left with huge (often unmanageable) liabilities.

Just as trading seemed to be recovering at the outset of 2022, the UK was plunged into economic uncertainty that has persisted ever since, defined by soaring costs, high interest rates and low consumer confidence as household spending was reduced amid the cost-of-living crisis.

Naturally, this has resulted in sky-high insolvency levels among retailers over the past few years. Many were already struggling to adjust to the shift from high street shopping to e-commerce that was underway pre-COVID and has only accelerated since. Even e-commerce retailers have started feeling the pressure. In the wider UK retail sector, insolvencies were up 19 per cent in the year to the end of January 2024, while the e-commerce subsector was not far behind, with an 18 per cent increase.

Amidst signs last year that retail buyers were beginning to focus more on strategic M&A, this downturn has nonetheless seen a slew of distressed M&A in the sector. According to recent figures from Grant Thornton, 24 per cent of retail deals that they tracked during 2024 were rescue or restructuring deals (9 out of a total of 38).

There is a perception that distressed M&A is often purely opportunistic. A case of taking a punt on a cheap deal and seeing if it succeeds. However, many distressed retail deals have seen the buyers acquire highly valuable assets, such as brands, IP and online operations, and some seem to have focused their M&A efforts almost exclusively on strategic distressed transactions.

With such high insolvency levels, so many retail businesses on the brink of insolvency and even more retailers heading in that direction, there are bound to be a significant number of distressed opportunities coming to market over the next few months.

Furthermore, should forecasts of an economic improvement come to pass, buyers who target distressed deals may be doing so in the belief that they can pick up valuable assets now and reap the rewards sooner than expected.

So, how can buyers best use distressed retail transactions to suit their strategic needs in terms of how they structure the deal, what kind of assets they choose to target and which they choose to avoid?

Being able to identify and execute on the best deals will help to ensure that buyers give themselves the best chance of a high-value, successful acquisition, rather than just jumping on a cheap, attractive opportunity that ultimately doesn’t work out.

What is the current state of play in retail?
According to figures recently released by accountancy firm Mazars, there were 2,195 insolvencies in the UK retail sector in the year ending January 31 2024, a near 20 per cent increase from the 1,843 seen the previous year.

Interestingly, this increase was approximately the same in the e-commerce subsector (which has previously experienced massive growth in the wake of the COVID-19 pandemic), with insolvencies rising from 521 in 2022/23 to 615 in 2023/24. This indicates that online retailers have seen their previous growth stagnate, mainly because of increased competition, whilst also being hit by the downturn in consumer spending.

While there have been some positive signs for the UK economy recently, with inflation falling and interest rates remaining steady after 14 consecutive increases, these have been extremely tentative and further uncertainty has meant that the Bank of England is yet to cut the official rate.

However, even if the UK economy does make a concerted improvement over the coming months, this is unlikely to be much help to the many UK businesses in severe financial distress.

A recent report from the Centre for Economics and Business Research (CEBR) forecast that 2024 could see more than 8,000 insolvencies per quarter and warned that there is a lag of approximately 18 months between economic improvement and a subsequent positive impact on struggling companies.

As a result, the CEBR (which says that around 33,000 UK companies are on the brink of collapse) expects insolvencies to continue increasing this year and named retail, along with hospitality and construction, as being the worst affected sectors.

This point of view was echoed by Mazars’ Rebecca Dacre, who commented: “Retailers are still not out of the woods as many are continuing to face rising staff costs. We are unlikely to see the retail sector trading comfortably until interest rates start to fall.”

“Despite inflationary pressures easing, high interest rates and low consumer spending continue to persist. The rise in the National Living Wage is the largest on record and some face a sharp rise in business rates from April.”

In spite of all this doom and gloom though, there have still been some green shoots of recovery emerging in the retail sector. According to the British Retail Consortium (BRC)-KPMG Retail Sales Monitor, UK retail sales rose 3.5 per cent in March, boosted by the unusually early Easter weekend.

There have even been suggestions that the increase in the National Minimum Wage, while it will lead to a cost base increase for many retailers, could ultimately have a positive impact by improving household spending, particularly as it coincides with the drop in the energy price cap and the beginning of the summer.

Overall, of course, the situation for many retailers remains bleak and thousands of companies will continue to fall into distress and insolvency this year. However, there are at least indications that improved trading conditions may slowly be returning.

This opens up the prospect that buyers who pounce on distressed opportunities over the next few months could be able to integrate these acquisitions at a time when the retail sector is in a far better place.

Assets and intellectual property
Over recent years, much distressed retail M&A has been characterised by buyers selectively targeting certain assets while ignoring others. A significant number of the many major retailers that have collapsed since the COVID-19 pandemic were lumbered with excessive networks of physical stores that were no longer performing amid the shift to online and hybrid shopping habits.

This approach has enabled buyers to snap up the assets that helped those companies build their success in the first place, such as prominent brand names and intellectual property, and leave behind unwieldy networks of costly, underperforming brick and mortar locations.

By doing this, buyers can acquire a struggling business’ most valuable assets, while limiting the risk they face in targeting distressed acquisitions. At a time when non-performing acquisitions (even those that were picked up cheaply from administrators or liquidators) can have significant negative repercussions for a buyer, having the ability to identify the most desirable assets of a collapsed company can be invaluable in ensuring that the acquisition is a success.


British Corner Shop is a global food retailer based in Bristol that built a significant international business by selling British food brands to customers and UK expats around the world.

Despite its prominent position as a supplier of UK food brands abroad, the company understandably suffered as a result of headwinds relating to Brexit and the COVID-19 pandemic.

Amid these difficulties, the company fell into administration twice within the space of less than a year. Following its second collapse, the company’s staff were made redundant and it ceased trading.

However, despite this, the firm’s joint administrators subsequently completed a sale of British Corner Shop’s intellectual property to UK Food Brokers Limited, a subsidiary of property company Magna Homes, as part of the company’s plan to diversify into the e-commerce market.

E-commerce: Distress could aid efforts to pivot online
The shift away from high street shopping to hybrid and online retail has been arguably the most prominent theme in the sector over the past ten years. While e-commerce retailers have faced similar increases in insolvency levels as the wider sector, this is perhaps more down to the impact of the cost-of-living crisis, the proliferation of online businesses and supply chain disruption, rather than a sign that the popularity of online retail was a fad that has passed.

E-commerce still remains a vital avenue for retailers and an offering that many will be seeking to bolster through acquisitions as they strive to open new revenue streams or strengthen existing ones and remain resilient, relevant and successful in a competitive marketplace.

Building an online service and gaining customers, however, can be a costly, time-consuming operation that many retailers simply won’t have the means to accomplish. The increase in e-commerce businesses entering administration offers the opportunity for retailers to pick up developed operations to either use as the basis for a new online offering or to bolster their existing platform.

E-commerce acquisitions can also enable retailers to become more technologically sophisticated, adding services and technologies that can help them manage their businesses better and improve their supply chain resilience.
Ed Bradley, founder and CEO of leading European dropshipping SaaS platform Virtualstock, expects acquisitions of struggling e-commerce retailers to be a major driver of M&A activity in the UK retail space this year, as those with the means to do deals aim to strengthen their businesses.

Bradley commented: “The retail M&A activity that has defined the last few years will continue into 2024 as firms with strong foundations seek to strengthen their e-commerce offerings by snapping up retailers in the red. But looking beyond these motivations, I believe that 2024 will be characterised by retailers consolidating, primarily to strengthen their supply chains.”


Flair Furniture is an online retailer based in West Yorkshire and owner of e-commerce children’s bed specialist Bed Kingdom. Amid significant growth in online retail over recent years, the company has expanded rapidly and last year opened a new 70,000 sq ft facility to serve as its stock and distribution hub.

However, the company has also proactively sought to further strengthen its operations through distressed M&A and last month announced the acquisition of the stock and IP of e-commerce children’s furniture specialist Cuckooland.

Cuckooland experienced a boom in sales during COVID-19, with orders doubling, but subsequently suffered a drop in demand that was exacerbated by a cyber incident and a glitch that affected its website.

After recording losses of close to £700,000 in the 2022-23 financial year, the firm was placed into liquidation, having racked up creditor debts of around £1.75 million. Following its collapse, the company’s liquidators, ReSolve Advisory, sold stock and IP valued at more than £800,000 to Flair Furniture.

Commenting on the deal, Flair Furniture founder and director Ashley Hainsworth said that, following years of promising growth, the acquisition provided an opportunity for the company “to expand laterally [... and] to branch out and work alongside new and existing suppliers.”

Hainsworth continued: “We already have a strong digital presence for children’s beds through one of our biggest brands, Bed Kingdom, so acquiring Cuckooland’s website and assets made sense. We’re pleased to be in a position to nurture and expand this exceptional brand.”

Pre-pack deals: Restructuring through administration
Struggling retailers faced with insolvency can potentially utilise pre-pack administrations to restructure and streamline their operations and gain new investment to help them continue operating and to build a stronger business.

While 2021 reforms have tightened regulations around certain types of pre-pack acquisitions, businesses that are genuinely heading towards administration or liquidation can still use the process as a valuable lifeline.

Pre-pack deals can also enable opportunistic buyers to rapidly complete distressed acquisitions without getting embroiled in a bidding war and to help the target company to avoid the reputational hit that can come from fully falling into insolvency and the uncertainty of waiting for a rescue deal to be struck.


Muji is a Japanese retailer that has built a strong presence in Europe through its Muji Europe Holdings Limited business, with the company’s simple household products inspired by stylish Japanese design having proved a big hit with customers in Europe.

The company’s success in Europe has seen the division build an estate spanning 32 retail sites and a significant e-commerce operation across Europe, including seven UK stores, six of which are in London.

However, its success did not make it immune from the impact of COVID-19 and other retail sector headwinds, with the European business falling to an operating loss of nearly £16.3 million on turnover of £75.8 million in the year to August 31 2021.

At the time, the company’s net liabilities amounted to more than £15.5 million and it subsequently had insufficient liquidity to repay overdue loans that it had taken on during the COVID-19 pandemic.

As a result, the company appointed administrators from EY in April 2024 as part of a “planned restructuring” of the European business. The administrators then completed a pre-pack sale of the European operations to Muji Europe, a new business set up by shareholder Ryohin Keikaku Co.

The deal secured more than 730 jobs across the company’s European operations and ensured that all stores would continue trading, with the new main shareholder pledging to make a considerable investment in new stores and an improved e-commerce offering, following a restructuring process.


Next case study: Building a portfolio through distressed deals
With a huge high street presence and a significant e-commerce operation, Next has long been one of the most recognisable UK retail brands. Naturally, the company was heavily affected by the sudden onset of the COVID-19 pandemic and associated lockdowns in March 2020.

However, while other rivals were less proactive (and perhaps less attuned to the power of maintaining an e-commerce business alongside physical stores), Next moved quickly to shore up its balance sheet and ensure that it could see out the worst of the crisis.

In April 2020, the company put its head office and three warehouses up for sale, ultimately securing a successful sale and leaseback of the properties in deals that were reported to have netted it more than £150 million.

At the start of the pandemic, the company also outlined a range of different scenarios for how it might perform over the coming year, helping it to see how much revenue would be lost and the steps that were needed to bolster its cashflow. In addition to the sale and leasebacks of its properties, the company also slashed investment plans by £45 million and suspended its share buyback scheme.

While these may seem like extreme measures, they were necessary at the time and enabled the company to survive the initial onslaught of the pandemic, where other rivals of similar scale failed.

This resilience also put Next in a position to capitalise on the distress that was rapidly mounting throughout the rest of the fashion and homeware retail world. Since 2020, the company has struck a number of high-profile acquisitions of prominent distressed retailers, often in deals that have selectively targeted certain assets.

In September 2020, less than six months after the start of lockdown, Next agreed a joint venture deal for the UK operations of US lingerie giant Victoria’s Secret, taking a 51 per cent stake in the business.

The following March, Next struck a deal worth around £200 million for a 25 per cent stake in high street chain Reiss and, in a sign of its strong financial position, announced plans to invest more than £40 million in the company.

This was followed by a joint venture to take over the UK website of the company’s major rival Gap. Gap’s UK operations had collapsed earlier in the pandemic, with its network of UK stores closing, but the deal also allowed Next to open Gap concessions in some of its locations.

This distressed activity has continued throughout the past few years. In November 2022, Next acquired the domain name and intellectual property of furniture retailer Made.com out of administration.

Last year, Next struck a similar deal to acquire the brand name, intellectual property and domain names of homeware retailer Cath Kidston out of administration in a deal worth £8.5 million, while leaving the company’s remaining UK stores and stock to be traded down by administrators.

These acquisitions have enabled Next to build a diverse portfolio of well-known brands that it has integrated into its strong physical and online presence, tapping into the value of these assets while, in general, avoiding stock and extensive networks of underperforming stores.

The approach seems to have paid significant dividends for the company. In January of this year, the company reported record-high pre-tax profits of £918 million. While this seems a far cry from the firm’s position at the start of the pandemic, those early steps were a vital part of a well-thought-out strategy that has enabled Next to emerge from the crisis in a strong position, even in a retail environment that remains extremely challenging.

Making successful distressed deals:
As Next has proved, distressed acquisitions don’t just have to be a case of pouncing on an opportunity when it appears. When executed correctly, distressed M&A can be a legitimate growth strategy in its own right and can enable businesses to unlock significant value.

However, in order to ensure value, it is important to proceed methodically, with due diligence expertise at the ready. The timeframes of deals may be significantly contracted and buyers will of course need to move quickly to acquire their targets, but that is no reason for recklessness or a lack of a clearly-defined strategy.

Set out a clear plan
Firstly, buyers will need to have a clear idea of their priorities and what they are seeking to achieve through their distressed acquisitions. Is the focus on developing an improved e-commerce offering? Moving into new product areas or bolstering existing ones? Expanding into new geographic areas or strengthening a local presence?

These will all be key things to consider and will help buyers to develop a profile of the kind of businesses or assets they will seek to acquire. There will still be an element of chance, of course, and it might not be possible to acquire a distressed business that fits a profile exactly, but having one in place will help to focus the acquisition strategy and ensure time isn’t wasted on unsuitable deals.

Watch for early signs
Distress is rife in the retail sector currently, meaning that there is likely to be significant competition for the best assets. To make sure they don’t miss out, buyers will often need to be able to spot early signs of distress, rather than just waiting to see which companies fail.

Businesses in financial distress will experience regular cash flow problems that may mean they struggle to meet rent or payroll obligations or fulfil orders. A business in this situation will have a negative working capital ratio, is spending more than it generates and is heading for serious distress.

Creditor action will be a subsequent step to look out for, as the business’ creditors increase pressure for payment. This may result in increased creditor or debtor days and, should the company not make its payments, County Court Judgements (CCJs) may follow, one or more of which may escalate into a Winding-up Petition.

Increasing creditor pressure and costs will erode the company’s margins and, unless it is able to considerably increase its prices, profits will fall.

It will also be important to look at the human resources side of the business. A distressed company will often experience an outflux of workers, as pressure from senior figures filters down to the staff.

Be ready and move quickly
Preparedness to act quickly will be vital in ensuring that buyers are able to take advantage of opportunities as they become available. Fundamentally, that means having the ability to select appropriate targets, underscoring the importance of having developed a profile prior to seeking opportunities.

In distressed sales, the primary goal of the administrators or liquidators will be to find a buyer with the means to complete an acquisition in a timely manner, to ensure as little disruption as possible to the affected business’ operations and customers and to maximise returns for creditors.

That means that buyers will need to have their financing in place ahead of time and be able to demonstrate to administrators that they are able to complete the deal. Given the tight time constraints, failure to do so will often mean that administrators move quickly on to another buyer.

An unavoidable truth with distressed acquisitions is that they come with inherent risk. After all, the company has just collapsed. This underlines the importance of still performing rigorous due diligence, as buyers will need to assess whether these risks are worth taking on.

Of course, due to the time-sensitive nature of the acquisition, due diligence will need to be carried out far quicker than normal, meaning that buyers should be asking the right questions in order to quickly gain a comprehensive picture of the state of the business. Professional advice and assistance from an expert may be advisable here to ensure that due diligence focuses on the relevant aspects.

Turnaround and integration
Due diligence will also provide buyers with an insight into the issues that will need remedying in the post-acquisition period. Even if the buyer is selective about which assets are acquired (for example, leaving non-performing assets such as physical stores), some streamlining and restructuring may still be required post-acquisition.

A well-developed turnaround strategy that maps out how the business or assets can be made profitable again, with clearly outlined goals, will be vital to ensuring that the deal is successful. Given the nature of distressed acquisitions, buyers should be prepared for this to be a gradual process and not assume that the acquisition will immediately enhance earnings.

This kind of approach will also be vital to integrating the acquisition, a process in which buyers will need to consider their initial aims in making the acquisition, monitor how the business responds to the turnaround strategy and set goals for fully incorporating the acquisition into their own business.


It is often the case that a business making distressed acquisitions will just be taking a chance on an opportunity that appears out of the blue and all acquisitions of this nature will involve an element of optimism and a bit of a gamble on a cut-price opportunity.

However, it is also entirely possible – as Next and others have demonstrated – to combine this with a clear strategy and long-term business goals. After all, acquisitions completed during times of economic uncertainty often deliver the most value, and there is no reason that buyers targeting the retail sector can’t have a sustainable, focused acquisition strategy based around distressed deals.

The key is to find the balance between taking a risk and selecting appropriate targets methodically and with an eye on the long-term.

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