Fitch: Operational, Market Factors Complicate Successful LBO Chance for Best
NEW YORK -- November 08, 2012
Fitch Ratings believes significant challenges stand in the way of completing a
leverage buyout (LBO) of Best Buy Co., Inc. (NYSE: BBY), according to a report
Fitch estimates the private holders would need to realize an exit multiple in
the low-4x range to earn a 20% IRR. This is based on current Bloomberg
consensus estimates (used to build a Base Case model), which project an EBITDA
decline of almost 16% from LTM levels through 2017, on a sales decline of
Fitch's expectations are more conservative than consensus estimates. If the
decline in same-store sales remains in the negative 3%-negative 5% range, as
it has over the last four quarters, EBITDA is likely to be further pressured
and consensus estimates could prove to be optimistic.
Fitch also notes that retail sector LBOs are typically unsuccessful, unless a
retailer has strong positioning within its category and the ability to grow
market share on an ongoing basis in a segment that is characterized by minimal
growth and heavy competition. Adding leverage to a pressured business has only
added to a company's woes given the significant high fixed costs and thin
margins of the business.
The full report, 'Best Buy LBO - Significant Hurdles Remain' is available at,
'www.fitchratings.com.' The report also includes a detailed debt
organizational structure and summary covenant analysis for the company's
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research: Best Buy LBO -- Significant Hurdles
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Monica Aggarwal, CFA
One State Street Plaza
New York, NY 10004
Brian Bertsch, New York, +1-212-908-0549
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