Deals

Gillian Tan is a Bloomberg Gadfly columnist covering deals and private equity. She previously was a reporter for the Wall Street Journal. She is a qualified chartered accountant.

It looks like Cabela's has at least one interested suitor. Now comes the hard part -- reeling it in. 

Buyout interest in the $3.6 billion outdoor-gear retailer was almost inevitable after Elliott Management revealed a stake in Cabela's in October and encouraged it to consider options. On Tuesday, Reuters reported that Bass Pro Shops (a rival chain) and Goldman Sachs's private equity arm are exploring a joint bid for the seller of hunting, camping, fishing and other apparel. 

Recommended Retail Price
Any offers for Cabela's may come in well below the expectations of a small group of shareholders, who want as much as $72 a share.
Source: Bloomberg

The sale process is reportedly in the early stages and could attract more bidders, but they'll be whittled down soon enough based on price. Already, that looks like a potential sticking point.

A handful of longtime investors said in November that they'd be comfortable with bids anywhere from around $60 a share to above $72 a share. That's quite a bit higher than the "mid-to high-$50s" range that private equity firms floated earlier that month. With the stock already trading close to $53 a share on Tuesday, already 58 percent higher than where it was before Elliott's stake disclosure set off takeover speculation, anything north of $60 a share looks like a stretch. 

Cabela's is weighing a separate sale of its credit card arm. But even if the team of Bass Pro and Goldman -- or any other buyers -- snap up the company in its entirety for $59 a share, that price would represent a valuation of 9 times Ebitda, according to analysts at MKM Partners. By comparison, Dick's Sporting Goods and its smaller rival Hibbett Sports are valued much lower at 6.9 and 6 times Ebitda, respectively. 

It can be argued that Cabela's -- which is more of a niche retailer -- deserves a premium to sporting-apparel peers like Dick's. After all, the once fast-growing activewear category may have run its course and in recent months, retailers like Sports Authority, City Sports and the owner of Eastern Mountain all filed for bankruptcy. But whatever that premium is, lofty expectations should remain in check considering other niche retailers like PetSmart and Petco were sold for forward Ebitda multiples of roughly 8.4 and 9, respectively. 

Banking on the Future
Cabela's Ebitda growth has slowed in recent years, and any suitors would be betting on their ability to accelerate it. A grouping including Bass Pro Shops would arguably have the most synergies to gain.
Source: Bloomberg

Shareholders should also keep in mind that analysts' average 12-month price target for Cabela's stock is $47.50, with the most enthusiastic setting a top of $56. That figure could decline considerably if the potential for a deal fades due to the price sensitivity of buyers, who, after all, are limited in how much they are willing to pay based on the availability of financing and the degree to which the economics make sense. 

Cabela's has had a good run. It shouldn't demand too much from a buyer, lest it be left telling the old fish tale of the one that got away.

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

To contact the author of this story:
Gillian Tan in New York at gtan129@bloomberg.net

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