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What’s old is new again in the mergers and acquisitions game.
This story first appeared in the November 13, 2012 issue of WWD. Subscribe Today.
Retailers wanting to expand their business are looking at Web properties, but have the very 1999 problem of wondering how much to pay for the newfangled businesses. And like the boom days of the last decade, private equity companies are on the prowl and able to borrow money very cheaply for deals.
Helping retailers navigate those waters is Lisa Clyde, managing director and head of Americas retail investment banking at Bank of America Merrill Lynch. She has almost 20 years of investment banking experience and worked on Lululemon Athletica Inc.’s initial public offering, Nike Inc.’s purchase of Hurley and VF Corp.’s acquisition of Seven For All Mankind.
Clyde has an MBA from Harvard Business School and talked with WWD recently about the latest in deal-making.
WWD: Europe is having economic troubles, Asia is slowing down, the U.S. is muddling along, is there any kind of economic silver lining here?
Lisa Clyde: I don’t think many of our clients are going to get any relief from the U.S. macro environment and in fact it could get worse. Most retailers have gotten very good at operating in…a very slow-growth environment where you don’t get any relief.
WWD: Are the companies stronger today than before the recession?
L.C.: A lot of retailers and branded companies used the recession and the weakness coming out of the recession to their advantage. Many of them went into the recession with bigger inventory levels than they’re running with right now. They made a lot of systems investments, productivity investments, cut a lot of costs out of their organizations. So I think what you find is a sector that’s candidly more nimble and lean.
WWD: Should these tighter, more nimble companies be demanding higher valuations?
L.C.: Most retailers five years later just have fewer growth opportunities domestically, so as you step back and look at it, that would say their growth rates should be coming down and therefore valuations should reflect that.
WWD: Is it a seller’s market in fashion?
L.C.: To a certain extent, it’s a seller’s market right now. There are very few quality assets, there’s stuff for sale, but very few quality assets, there’s a scarcity value right there. If you think about the demand drivers, you have strategic buyers with a lot of cash they’ve built up. They have access to very inexpensive — by relative measures — capital. When I look at the private equity firms, there’s huge demand drivers. We’re in an environment where leveraged levels are higher than they were in 2005-07 and the cost of capital is near an all-time low.
WWD: Companies are turning to M&As to learn new tricks, particularly online. Is there a consensus on how to value some of these targets?
L.C.: The valuation aspect of it is definitely a retardant to why you haven’t seen more activity than you have, particularly if you think about the e-com space. For some of the brick-and-mortar companies to think about acquisitions in anything tech related, the valuations are stratospheric.
WWD: It’s like a parade of some of the past trends.
L.C.: Oh, I feel like I’m back in ’99.