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Timing the Neiman Marcus Deal

The retailer is taking a “dual track” approach, exploring an initial public offering or alternatively an outright sale to another investor.

As private equity deals go, TPG and Warburg Pincus’ 2005 acquisition of Neiman Marcus Inc. is getting long in the tooth — big money investors typically spend five to seven years tweaking a company before trying to cash in.

So with the stock market near its all-time high and interest rates still low, Neiman’s is working with Credit Suisse, which, according to sources, is taking a “dual track” approach, exploring an initial public offering or alternatively an outright sale to another investor.

But the private equity companies could also choose to stick with Neiman’s longer, an option that might be causing some friction between the two investors. A financial source said TPG was content to hold on to the investment, while Warburg Pincus is more keen to unload the luxe retailer now. Other sources close to the investors maintain there is no disagreement.

 

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At least half the trick to investing is knowing when to sell, so it wouldn’t be surprising if TPG and Warburg had differing views on when to get out. One banker noted that TPG, if they were reticent, is interested enough to explore ways to exit the investment and would jump out if the right chance came along.

The landscape for Neiman’s is a tricky one right now.

The private equity firms bought Neiman’s for $5.1 billion in the midst of a massive consumer rally, but the investment ran headlong into the Great Recession and the financial crisis, which hit many Neiman’s customers hard as markets crashed.

Now Wall Street is at a new peak and funding for a buyout is easy to come by, but many are unsure how severe a correction the stock market is in for once it comes off its high. Neiman’s also still needs to demonstrate solidly where its future growth is going to come from.

There’s also competition in the market.

Saks Inc., which has been on and off the market for years, appears to have recharged efforts to find a suitor. Even with rumors of the process pushing Saks’ stock up, the combined value of the company’s equity and debt is still just $2.55 billion — making it a much cheaper takeover than Neiman’s.

Widespread reports had private equity firm Kohlberg Kravis Roberts & Co. wanting to buy Saks and then work with TPG and Warburg to merge it with Neiman’s, an alternative that’s been examined and discarded in the past. Spokesmen for both TPG and Warburg declined to comment.