Deals

Brooke Sutherland is a Bloomberg Gadfly columnist covering deals. She previously wrote an M&A column for Bloomberg News.

There's a case to be made for a Build-A-Bear Workshop buyout, and it's not full of stuffing.

Cannell Capital, a shareholder of the $214 million company that lets children make their own stuffed animals, said late Tuesday that the company should step up share buybacks among other things. Build-A-Bear has already authorized $35 million in repurchases just in the last year. Instead of continuing to gobble up its own stock, why not have a buyout firm do it?

November Slump
Build-A-Bear's 2015 slide has worsened in the last month after disappointing earnings.
Source: Bloomberg

Build-A-Bear has slumped by about 35 percent so far in 2015 amid slow mall traffic and the lack of an immediate followup to last year's ``Frozen''-fueled sale surge (aka, do you want to build an Elsa bear?). With stores in prime tourist areas of cities such as London and Copenhagen, there's also some concern among investors that fear of terrorism at so-called soft targets could keep shoppers away, said Stephanie Wissink of Piper Jaffray.

All of that has left Build-A-Bear trading near its lowest valuation in more than a year relative to Ebitda and made it one of the cheapest U.S. specialty retailers around. That kind of a bargain is a rarity these days, when many companies are at or near records. 

Bargain Shopping
Build-A-Bear is cheaper than most U.S. specialty retail peers.
Source: Bloomberg

The toy workshop isn't just cheap; it also checks off private-equity buyers' other favorite boxes such as minimal debt, stable free cash flow and an opportunity for a turnaround. Chief Executive Officer Sharon Price John, who took over in 2013, is capitalizing on licensing opportunities that converge with top movies. Think Star Wars-themed stuffed animals to go along with the Elsa Bear and a Minion. Indeed, after a drop in sales this year, analysts are projecting roughly 5 percent annual increases from 2016 through 2019.

Even with a takeover premium, Build-A-Bear is an easily digestible  target -- and may be a project worth taking on.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Brooke Sutherland in New York at bsutherland7@bloomberg.net

To contact the editor responsible for this story:
Beth Williams at bewilliams@bloomberg.net