Breaking News

Family Dollar Board Rejects Proposal From Dollar General
Tweet TWEET

CCMP, Irving Place Say They’ve Grown More Selective on Retail Takeovers

Buyout firms including CCMP Capital Advisors say they have grown more selective on retail takeovers after last year’s deal revival, seeking targets that can withstand sagging confidence and rising commodity costs.

“You don’t see it in the stock prices yet, but there are a lot of headwinds,” said Richard Zannino, managing partner of New York-based CCMP, whose retail investments have included outdoor-sports chain Cabela’s Inc. (CAB) He spoke this week at a private-equity discussion at Bloomberg headquarters in New York.

Prices for cotton have almost doubled in the past year and costs for oil have gained more than 30 percent, prompting some consumers to cut back on spending. Only the most disciplined retailers are poised to thrive, leaving slimmer pickings for buyout firms that took part in $25 billion of retail-related deals last year, according to data compiled by Bloomberg.

This year, managers have announced more than 50 deals worth about $4 billion, the data show. With last year’s enthusiasm still fresh, some retailers may expect higher prices than buyout firms are willing to offer, said Anthony Choe, a partner at Brentwood Associates in Los Angeles.

“Sellers are going to be looking at 2010 saying ‘Hey, we had a banner year, the future’s rosy,’” said Choe, whose firm’s prior investments include clothing retailer Zumiez Inc. (ZUMZ) “We’re going looking at stuff saying, ‘Yeah, but look at all the stuff that’s come down the pike.’”

Commodities Impact

Most of the impact of rising commodity prices won’t appear until the fourth quarter for many clothing sellers, since it will take time for them to absorb the costs, said Les Berglass, chairman of New York executive search firm Berglass + Associates. Some retailers get as much as 40 percent of their revenue from that quarter, when many consumers shop for the holidays.

Still, companies with consistent growth will command a premium, said Rick Perkal, senior managing director at Irving Place Capital Management LP in New York, which has invested in Vitamin Shoppe Inc. and apparel retailer New York & Co. The average premium on private-equity deals for retailers is about 23 percent this year, compared with about 18 percent in 2010, according to data compiled by Bloomberg.

Buyout firms are in a better position to take advantage of appealing opportunities because publicly listed retailers have had to focus on stabilizing their businesses, instead of on acquisitions, Perkal said. Better borrowing terms also are helping managers go head-to-head with corporate buyers, CCMP’s Zannino said.

“Private equity is once again very competitive because of where the debt markets are,” he said.

J. Crew Takeover

Among the largest and highest-profile deals recently is the $3 billion takeover of J. Crew Group Inc. by TPG, the buyout firm managed by David Bonderman and James Coulter. TPG, which bought the retailer for the second time in 15 years, aims to assist Chief Executive Officer Millard Drexler in expanding J. Crew’s overseas operation and launching new brands.

Despite that and other deals, the market for retail takeovers is unlikely to bounce back to the levels seen in 2006 and 2007, the executives said.

“People are being a lot more discerning on what they’re willing to make bets on,” said Brentwood’s Choe.

To contact the reporters on this story: Lauren Coleman-Lochner in New York at llochner@bloomberg.net; Jason Kelly in New York at jkelly14@bloomberg.net; Cristina Alesci in New York at calesci2@bloomberg.net

To contact the editors responsible for this story: Robin Ajello at rajello@bloomberg.net; Christian Baumgaertel at cbaumgaertel@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.