By and  on September 19, 2005

NEW YORK — With the mergers and acquisitions market brimming with more than $100 billion in private equity funds — and investors looking to spend it in the retail sector — this is one of the rare moments in business when perhaps having too much money can be a bad thing.

"There is still a lot of private equity money out there right now, and they are looking at retail," said Ken Wasik, director of the consumer products group at Houlihan Lokey Howard & Zukin. But this is a seller's market, and there are few good target companies to buy, which "is making [the private equity players] very aggressive. And this is driving up valuations."

Case in point is one of the most talked about M&A deals this year: the acquisition of Neiman Marcus Group by Texas Pacific Group/Warburg Pincus LLC. At $100 a share, the acquisition offered a premium of more than 35 percent to shareholders holding the stock when Neiman Marcus first said it was "exploring strategic options" earlier this year.

During Financo Inc.'s Annual Merchandising Equity Investors Conference last Thursday, William Susman, president and chief operating officer of the M&A advisory and consulting firm, said retail is highly attractive to investors, especially the private equity players. "[Retail] offers attractive returns on invested capital, and it is a strong cash generator," Susman said.

The conference, held at the Harmonie Club here, included a keynote speech by Kip Tindell, president and chief executive officer of The Container Store. There was a also a panel discussion with executives from Tumi, FreshDirect, Apollo Diamon and Anne Fontaine. All of these companies are being eyed by the private equity investment community, and nearly all the attendees at the conference were private equity investors. Susman estimated there was $50 billion worth of funds represented in the room.

One attendee, a private equity investor who previously had been a Wall Street analyst, lamented over the current state of business. "When we go to make a bid at a fair multiple [of pretax earnings], someone comes in quick, offering a higher multiple. It is a very difficult, challenging market," she said.

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