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Neiman Marcus Inches Closer to IPO

Support from bankers and investors grows as other sale strategies are eliminated.

Neiman's units are among the industry's most productive doors.

Neiman Marcus Group is moving closer to an initial public offering, as support from bankers and investors grows and other sale strategies get eliminated.

This story first appeared in the August 7, 2013 issue of WWD.  Subscribe Today.

In recent weeks, merger talks with Saks Inc. were explored and NMG’s owners, TPG and Warburg Pincus, held discussions with possible buyers, such as the sovereign wealth fund of Qatar. However, it is now believed that the two private equity owners view an IPO as the best exit strategy. Last week, Hudson’s Bay Co. reached a definitive agreement to buy Saks, leaving one less player in the field that could have pursued a deal for Neiman’s.

One investment banker, who requested anonymity since he’s not working on the IPO, said, “There aren’t many corporate buyers for an asset such as Neiman Marcus. The other option is to trade to bigger financial sponsors, but there’s not many at the next-higher level after TPG and Warburg Pincus. That leaves really the IPO as the exit strategy that’s left.”

Another banker said that the IPO window is still open, with investors likely receptive to a “really good retail IPO coming to market.”

Investors are already awaiting the planned apparel and retail offerings of Claire’s Inc., Burlington Coat Factory and the Vince brand, to name a few. Claire’s filed in May to raise $100 million. Burlington filed its plan in June for a proposed maximum offering price of $175 million. Vince, a division of Kellwood Co. and owned by private equity firm Sun Capital Partners, last month filed a draft registration statement with the Securities and Exchange Commission under the name Apparel Holding Corp.

Wall Street investors and retail analysts generally believe Neiman’s could be a strong IPO, but not necessarily a blockbuster. “A Neiman’s IPO would be very well received,” said one retail investor. “Neiman’s is widely viewed as a better business than Saks, though it only owns 15 to 20 percent of their footprint [real estate].”

TPG and Warburg Pincus bought Neiman Marcus in 2005 for $5.1 billion in a cash and debt transaction. Leonard Green & Partners subsequently took an investment stake in the retailer.

Earlier this year, Neiman’s reportedly had a price tag of more than $7 billion for its operations and that of Bergdorf Goodman. As part of a dual-track process, in June, the company filed its registration statement to go public with the Securities and Exchange Commission, and used a $100 million figure as a placeholder and in part to calculate registration fees. It said at the time that Credit Suisse AG, its investment banker, would also lead the underwriting for the offering.

On Tuesday, Reuters first reported that Bank of America Merrill Lynch and J.P. Morgan Chase & Co. would be the additional underwriters for the IPO.

It isn’t clear how much a Neiman Marcus IPO could raise, and there’s no guarantee it could come close to, or even surpass, the $1 billion raised by Coty Inc. in its June IPO. The Coty IPO is considered the largest consumer-products IPO to hit the U.S. market since January 2002 when Caroline Group raised $1.1 billion in its IPO. In the fashion and beauty space, Coty is the largest IPO since Michael Kors Holdings Ltd. raised $944 million in its December 2011 IPO in Hong Kong. Earlier this year, Blackstone Group’s SeaWorld Entertainment IPO in April raised $702 million. It also used the $100 million number as its placeholder.

Investor concerns may center on the luxury retailer’s limited domestic expansion potential, untested potential overseas, luxury consumers becoming more discerning in their shopping, and designers continuing to open their own stores and pressing for leased shops inside department stores. Neiman’s, unlike Saks Fifth Avenue or Bloomingdale’s, has a policy against leasing space to brands.

On the upside, Neiman’s stores are among the industry’s most productive, with the clientele loyal shoppers. A huge plus is that Neiman’s management is stable, subject to less turnover than other retailers, and considered seasoned with many top executives having spent much of their careers at the store. It also has room to grow its Last Call outlet business, and has been investing heavily in creating new shops and departments at Bergdorf Goodman to boost productivity there. Neiman’s, in its filing to go public, said it could double the Last Call count to 70 units over the next five years and expand the Cusp contemporary chain, where the growth of freestanding locations has been on hold, while Cusp areas inside Neiman’s stores have blossomed.