NEW YORK — A premium price for a premium retailer.
Investment banking sources familiar with the potential sale of the Neiman Marcus Group said Wednesday that the high-end retailer has a price tag of $100 a share, or about $5 billion. Prior estimates on the acquisition price were in the range of $4 billion to $5 billion.
Shares of Neiman’s have been trading around $86 to $87, making the price a premium of 15 percent.
Sources said a consortium of private equity investors remains the most likely buyer, with the Blackstone Group and Apollo Advisors leading the pack of bidders. These firms have been conducting due diligence on Neiman’s, which in its most recent fiscal year had sales of $3.5 billion. Neiman’s market capitalization is about $4.28 billion and its enterprise value is pegged at $4.33 billion.
The sources also said Hong Kong-based Lane Crawford Joyce Group is interested in joining the bid, perhaps to run the operations as well as take the brand global. The group operates more than 240 stores in 32 markets in the greater China region.
The retailers and investors could not be reached for comment.
Why a group of private equity firms, who usually eye distressed companies and flip them in four to five years to earn a decent return, would be willing to pay a premium of 15 to 20 percent on an acquisition at first glance seems odd.
But a private investor, who has holdings in the retail and luxury sectors and asked for anonymity, explained that the investors would use a large portion of debt to buy the retailer, and hold it for a longer period before flipping it. “They can structure the balance sheet in a way that frees up the cash flow, which would be used to pay down a low-interest debt facility over a period of time,” the investor said. “After 10 years, they would have a debt-free asset that could be sold for a nice price, and a nice return.”
The investor said a group of financial players could buy Neiman’s for $5 billion with $3 billion of that financed in structured debt. “Neiman’s would be a cash cow for them, especially if they were paying 6 percent interest on the debt load, and working on a strategy that grows their [pretax] earnings while they maximize its operations,” the investor added.
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