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.It’s important to note that private equity firms already have decent amounts of cash saved up, so taking out debt might not be necessary to finance an acquisition. Typically, if they decide to finance a transaction, they would likely do it in corporate bonds, said an analyst from a large investment bank. Because interest rates are so low, equity firms could get even four times the money they actually need. That’s partially why the market is seeing so many deals lately.
In terms of managing Neiman’s, if it is bought by a private equity firm or consortium, it would be in the investor’s best interest to keep its current management on board, said the analyst, adding that the investors could offer Neiman’s top managers a piece of the pie.
Regarding the Blackstone Group, the investment firm has eyed and advised companies in the retail sector, but this would be a major play for it. According to its Web site, Blackstone Group’s private equity group manages $14 billion through its Blackstone Capital Partners I, II, III and IV and Blackstone Communications Partners I funds.
The firm has been involved in private equity investing since 1987. Current holdings include Houghton Mifflin, Universal Studios Florida and Allied Waste.
Blackstone’s corporate partners include AOL Time Warner, AT&T, Sony and Vivendi Universal, among others. Corporate partnerships make up about 60 percent of the equity capital invested by Blackstone’s aforementioned funds.
Within corporate partnerships as of March 31, 2004, Blackstone has invested more than $5.1 billion of equity capital in 38 transactions with a total transaction value of more than $50 billion.
Blackstone’s target investment size is $100 million to $400 million, putting the nearly $5 billion investment in Neiman’s out of that range. However, the firms says on its Web site that larger and smaller transactions are also considered.
The company has been expanding in Europe over the past several years, opening a London office in August 2000 and one in Hamburg in September 2003. A strategic alliance with Roland Berger Strategy Consultants GmbH, a European management consultant, was formed in February 2001.
“Azzedine has been one of the biggest influences in my life. He has always been such a strong, loving, fatherly figure to me. I call him Papa. His designs are indescribably unique, they are pieces of art. He knew how to make the female form look its loveliest. I have so many memories of him; my favorite might be during my first show with him in Paris. He liked me and he wanted to help me get more work. He called all his friends at Kenzo and Comme des Garcons, and asked them to book me. They said, ‘But she can’t walk!’ And he said, ‘but she has such a great ass!' His friendship and support has been the great privilege of my career. I can't imagine life without him. Repose en paix mon Papa.” - @stephanieseymour tells @wwd. #wwdfashion (📷: @steveeichner) #alaia #azzedinealaia
Azzedine Alaïa, flanked by two of his closest friends, models Stephanie Seymour and Naomi Campbell.
He designed Seymour’s dress for her 1995 wedding to Peter Brant, and treated Campbell (who famously called him Papa), like a daughter. For more on the legendary designer, tap the link in bio. #wwdfashion #alaia #azzedinealaia
Azzedine Alaïa's “I-did-it-my-way” ethos stood out starkly at a time when brands are experimenting with consumer-facing fashion shows, coed formats and trans-seasonal collections – anything to perk up lackluster sales of ready-to-wear in an age of Insta-everything. “It’s not creation anymore. This becomes a purely industrial approach,” the late designer told WWD in an interview last year. “But anyway, the rhythm of collections is so stupid. It’s unsustainable. There are too many collections.” Read more about the iconic designer’s life and work on wwd.com, link in bio. #wwdfashion #azzedinealaia (📷: @WWD Archive, 1986) #alaia
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Azzedine Alaïa, one of the most iconic couturiers of the modern era whose body-con designs defined Eighties fashion, has died in Paris. The diminutive Tunisian-born designer, known for his structured knitted dresses with fitted waists and impeccably cut, figure-hugging second skin silhouettes was deeply admired by his peers, and counted supermodel Naomi Campbell - his adoptive daughter - among his inner circle, one of a gang of glamazons including Farida Khelfa, Carla Bruni and Stephanie Seymour who became ambassadors of his style. (📷: Alexandre Guirkinger) #wwdblast