By and  on April 1, 2005

NEW YORK — Four partnerships are forming among venture capitalists eyeing potential bids for Neiman Marcus Group.

Driven by higher acquisition prices in the market, private equity players are getting a lot more cozy as they search for bigger and bigger deals.

Financial sources said the four partnerships, which have already done extensive due diligence in the Neiman sale, are: Thomas H. Lee Partners and Blackstone Group; Kohlberg Kravis Roberts & Co. and Bain Capital Partners; Apollo Advisors and Leonard Green & Partners, and Texas Pacific Group working with an unnamed strategic partner.

Calls to Thomas H. Lee, Blackstone, KKR, Bain, Apollo and Leonard Green for comment were either not returned or officials said that the firm’s policy is not to provide comment.

Bids for Neiman Marcus are expected to be submitted within the next two to three weeks.

Meanwhile, there’s a growing possibility that Saks Fifth Avenue is being eyed as an acquisition target by a consortium of private equity firms. This follows a report in WWD that the Saks Department Store Group is being put on the auction block.

Merrill Lynch analyst Kevin Boler issued a research note saying Saks Inc. — including Saks Fifth Avenue and the department store group — could carry a price tag of $3.5 billion to $4.5 billion. “However, we feel that the company would rather sell the department stores separately and run Saks Fifth Avenue as a stand-alone company,” Boler added.

There are also ongoing murmurs that equity players are teaming up for a leveraged buyout of J.C. Penney, although executives at Penney say the company is not for sale [see related story on page 2].

Private equity players teaming up to scout and then acquire target companies is a bit of a departure from prior years when these types of firms tended to make acquisitions on their own.

One financial source said while the private equity firms are constantly looking for possible opportunities, he doubts many get to the more extensive, due diligence round — the exception being the firms involved with Neiman Marcus.

One of those financial players, The Texas Pacific Group, is said to be showing increasing interest in Neiman’s. “We have absolutely no comment,” said a spokesman for TPG.However, a source close to TPG said Thursday, “Several groups are interested. You can throw Texas Pacific into the mix. It’s advanced to a stage where they are in the mix.”

As reported by WWD on Monday, due to its high share price, Neiman’s is expected to command around $5 billion. Texas Pacific could easily be included in a consortium of buyers. Just this week, TPG said it was part of a partnership, including General Atlantic, that was buying into Lenovo Group, a Chinese computer maker, to help finance Lenovo’s purchase of IBM’s PC division. Also this week it was announced that TPG was part of the big consortium, including Bain Capital, Blackstone Group and KKR, that agreed to take over SunGard Data Systems.

Texas Pacific has offices in San Francisco, London and Fort Worth, Tex., and manages more than $13 billion in assets in a variety of industries including retail, health care, technology, consumer products and airlines.

Neiman’s would be a different kind of investment for TPG, considering it has frequently taken over distressed companies with the intention of turning them around and years later selling them. The firm’s investment portfolio includes: J. Crew Group, the Bally luxury brand, Seagate Technology, Burger King, Ducati, Petco and Continental and America West airlines.

As far as TPG’s criteria for investments, “They invest in all kinds of industries, but it’s got to make economic sense and there has to be a feeling TPG could add value. Size is not necessarily a criteria, but they do tend to do larger deals. The company is flexible with the capital.”

In regard to the flurry of activity in the fashion and retail sector, a financial source skeptically remarked, “I have great doubts that many of these firms are truly for sale, or would command a premium multiple. Because everything seems to be for sale, you have many people in the investment banking business trying to create opportunities. For Brad Martin, chairman of Saks Inc., the prize possession is Saks Fifth Avenue, and I doubt he would be happy to part with it.”

Several of the firms interested in Neiman’s — such as KKR, Bain and Apollo — also have been mentioned as possible suitors for Saks Fifth Avenue. KKR and Bain teamed up last month, along with Vornado Realty Trust, to purchase Toys ‘R’ Us Inc. for $6.6 billion. Cerberus teamed up with Sun Capital Partners Inc. and Lubert-Adler/Klaff Partners to buy Mervyn’s from Target Corp. in July for $1.2 billion.One private equity executive observed, “The purchase prices are getting bigger, and while there’s lots of talk about major firms raising $10 billion for a fund, no one in their right mind is going to put more than 10 percent in any single investment. If things go wrong, it will blow up the entire fund.”

But there is enormous pressure to invest the fund’s money. And while there’s talk about a paucity of quality opportunities in the market, there’s also the sense that everything is on the auction block.

The private equity executive said Sarbanes-Oxley, the 2002 Congressional act of accounting and disclosure regulations, is fueling part of the so-called “for sale” signs popping up. “We see a trend that many public companies want to go private. Sarbanes-Oxley is a nightmare for many firms because of [Wall Street’s] focus on the short term. By going private, companies can concentrate on a long-term strategy.”

Of course, getting snapped up by a financial investor usually means a new owner within a three- to seven-year time frame, and for many private equity firms that means an exit strategy, which entails taking the investment public.

While fashion and retail initial public offerings have had mixed success rates, they can sometimes be successful, particularly if the company’s operations can be improved. Two recent IPOs in fashion retail that have done well are Aeropostale and New York & Co., both brought to market by Bear Stearns Merchant Banking.

To access this article, click here to subscribe or to log in.

To Read the Full Article

Tap into our Global Network

Of Industry Leaders and Designers

load comments
blog comments powered by Disqus