By  on September 26, 2005

NEW YORK — During Financo Inc.'s Annual Merchandising Investors Conference at the Harmonie Club here two weeks ago, a room packed with private equity investors listened quietly and intently to representatives from some of the hottest retailers and vendors in the industry.

The executives, including Kip Tindell, president and chief executive officer of The Container Store; Laurence Franklin, president and ceo of Tumi; Dean Furbush, ceo of FreshDirect; Bryant Linares, president of Apollo Diamond, and Ari Zlotkin, ceo of Anne Fontaine, discussed their businesses and how they are positioned in the market. William Susman, president and chief operating officer of Financo, estimated that the investors at the conference represented about $50 billion worth of private equity money. Susman said about 40 percent of the mergers and acquisitions so far this year involved private equity funds.

Some deals Financo has advised on include the sale of Casual Corner to Gordon Brothers, the Joe Boxer acquisition by Iconix, the purchase of Gadzooks by Forever 21 and the recapitalization of Frédéric Fekkai. In an interview with WWD, Susman discussed why private equity players are pursuing acquisitions in the retail sector as well as what firms look for in a target company.

WWD: The private equity market seems to have its eyes fixed on retail. What is driving them to the sector?

William Susman: What's driving private equity into the sector is its successful track record. The demand is strong due to several factors, including consistent, positive same-store sales by key retailers and a low-interest rate environment. And when gas prices were low, we experienced a lot of activity. That said, as interest rates climb and fuel costs rise, demand in the sector could curb somewhat. Still, the demand remains strong.

WWD: What sort of companies make ideal acquisition targets in the current environment?

W.S.: From the perspective of an acquirer, ideal candidates are retail companies that offer stable operating performance as well as consistent, productive square-footage growth. A strong management team is also critical.

WWD: What are some of the qualities that attract private equity firms to a target company? Is it management? Brand? A strong balance sheet?W.S.: It is three things: management, management and management.

WWD: If a company is interested in putting itself up for sale, what does it have to do to "get its house in order?"

W.S.: The first step, after considering to put your company or some of your company's assets up for sale, is to hire an adviser. An adviser will help you understand the risks involved, and what transpires during a sale so there are no surprises. It's important to note that private companies have much greater flexibility in the process, but both public and private companies can get through the process. And it is much easier with the guidance of an adviser.

WWD: What are the benefits of hiring an M&A adviser? Do those benefits differ for a seller and a buyer?

W.S.: Yes, there are different benefits. For sellers, hiring an adviser can ensure the best fit, and also make sure the deal closes at a fair price. For buyers, an adviser can guide them through this often complicated process, helping them assess the market and the competitive environment while helping them find teams to execute the selling strategy or plan.

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