By  on November 2, 2010

John F. Megrue Jr. is looking at retail and likes what he sees.

“Right now is really a unique time,” Megrue, chief executive officer of private equity firm Apax Partners U.S., said Monday. “There is a dislocation in the market,” with retail debt financing coming back as some stock valuations in the sector lag. “We are going to see a much more active period in the next six to 12 months than we have historically.”

That assessment from one of the key players in Apax’s sale of Tommy Hilfiger to Phillips-Van Heusen Corp. merits attention.

Just where all the action will be is unclear. There has been rampant speculation through the market that retailers across a spectrum might be in play. So far, there have been only a few deals.

Private equity firms like Apax are expected to drive much of the action. As a group, the firms have tons of money ready for retail deals — $100 billion according to McKinsey & Co.’s reckoning — as well as access to debt markets.

Megrue sketched out some of the attributes that draw the interest of the investing giant, which manages $37 billion and focuses on deals worth more than $1 billion. Apax owns British fashion retailer New Look and another of its holdings, Rue 21 Inc., went public in November.

In addition to searching for “well-positioned” brands, Megrue is focusing on online businesses, which he described as an “underinvested” category.

“We are huge believers in this,” he said. “There’s a lot of low-hanging front in terms of scaling this business.”

On the other hand, Megrue said businesses that are made up of a portfolio of brands are prone to distraction and take time to figure out.

Niche brands are also a problem. “They tend to be too small to be confident we can take them internationally,” he said.

Growth is a common theme in the company’s investments.

Although Tommy Hilfiger was focusing its business with Macy’s Inc. in the U.S., the brand was in expansion mode overseas. In fact, the brand’s European base was one of the most attractive parts of the company to PVH.

Megrue described Rue 21 as a “dislocated opportunity.” The value-oriented specialty chain — denim sells for $19.99 — has more than 600 stores in 44 states and focuses on out-of-the-way markets where there is little competition.

He also highlighted some of the difficulties faced by publicly held retailers.

For more mature stores, “It is a lousy idea to be public,” Megrue said. “Wall Street stops appreciating how core the brands are.” Public companies also face difficulties making high-risk moves.

Megrue urged boards to think about going private. “Do it at least once a year,” he said.

In addition, he noted: “We pay big premiums. That’s the business we’re in.”

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