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Field Rich With LBO Options for Private Investors

With their pockets stuffed with $120 billion to spend, private equity firms have surveyed the retail and luxury landscape and made some remarkable deals.

NEW YORK — With their pockets stuffed with $120 billion to spend, private equity firms have surveyed the retail and luxury landscape and made some remarkable deals.

Edward S. Lampert’s ESL Investments, for example, bailed out Kmart Corp. from bankruptcy two years ago. Lampert subsequently upped his stake in Sears and forced the retailer to sell its credit card business. Lampert then took the helm of Kmart Holding before engineering the $11 billion merger with Sears, Roebuck & Co. to create Sears Holding Corp.

Other notable hedge-fund deals include the sale of Mervyn’s, which involved Cerberus and, more recently, Toys ‘R’ Us.

But these deals involved target companies that were either distressed or on the auction block. A leveraged buyout of J.C. Penney signals a return to the corporate raids of the late Eighties. Here are some possible LBOs the hedge funds might consider:

  • Gap Inc.

    With sales of about $16.3 billion — just a bit under those of Penney’s — acquiring Gap could be a piece of cake for a consortium of private equity players.

  • Kohl’s

    This retailer has an enterprise value of $17 billion, but it targets a demographic similar to J.C. Penney.

  • Dillard’s

    Sales are about $7.5 billion. The predominantly family-run company is consistently tight-lipped and rumored not to be interested in selling, which would make it a challenging LBO.

  • Coach

    Attractive on the top line, bottom line and on the balance sheet, Coach has an enterprise value pegged at $11 billion. But Lew Frankfort, chairman and chief executive, might put up a tough fight.

  • Abercrombie & Fitch

    Also an attractive catch, especially with an enterprise value of about $4.4 billion.

  • Nike Inc.

    With an enterprise value of over $20 billion, this would be one trophy LBO deal,  worth considering given the company’s dominant market position.