Betting the combination of trendy fashions and value will continue to pay dividends, Irving Place Capital acquired Dots, a Glenwillow, Ohio-based retailer with more than 400 stores in 26 states.

This story first appeared in the January 5, 2011 issue of WWD. Subscribe Today.

John Howard, chief executive officer of Irving Place, told WWD the retailer could expand to 1,000 doors with some additional funds and the right kind of attention. Dots has sales of about $400 million. Terms of the deal, which closed Monday, were not disclosed.

“The company’s doing quite well,” Howard said. “It’s a question of how can we help nudge it to do better.”

Irving Place has plenty of experience from which to draw, having invested in Aéropostale, New York & Co., The Vitamin Shoppe, Seven For All Mankind, Stuart Weitzman and, through a collaboration with Creative Artists Agency, J Brand.

“They’re fast on their feet,” said Howard of Dots. “They’re not a vertical retailer, so they go to the markets. They’re not fashion leaders — they’re kind of quick followers. That’s a recipe that you can do without designing your own product. It’s not commodity apparel, it’s fashionable apparel. Why buy something that’s plain when you can buy something that’s special and pay the same price?”

Situated in strip malls in the Midwest, East and Southeast, Dots sells fashions under its own brand and caters to 25- to 35-year-old women. The chain is courting the same customer who shops at discounters such as Wal-Mart and Kmart, but with a trendier offering. One ensemble on the Dots’ Web site features a V-neck sweater, a glitter tank top, a faux fur jacket and ripped skinny jeans that together sell in the store for $84. The company has no e-commerce presence.

Dots is looking to expand in urban and suburban markets with median household incomes of $45,000 to $65,000. Its stores are generally 4,000 to 5,000 square feet and receive new shipments twice a week. The retailer’s buyers work with vendors in New York, Los Angeles and Europe.

Although the outskirts of Cleveland hardly qualify as a fashion capital, the company taps into the talent coming out of nearby Kent State University’s fashion program.

“This is a well-managed franchise that we can add value to,” Howard said. “We like this kind of business. We’re not scared of it. We think there’s a lot of cost-saving type of opportunity.”

He said there were also gains to be had by investing more in the company’s stores.

Dots was founded in 1987 by Bob Glick, who will hand over the title of ceo to Rick Bunka, who had been president.

“This acquisition is a wonderful opportunity for Dots to capitalize on its brand and accelerate its growth,” Glick said. “Rick Bunka’s leadership will provide continuity for Dots associates.”

Bank of America Merrill Lynch was Dots’ financial adviser on the deal and KeyBank, which has worked with the retailer for more than 20 years, provided senior financing for the transaction.

Private equity players typically buy a company and tweak its operations over the course of a few years in hopes of growing the business and selling it for a premium or taking it to the broader market though an initial public offering. Specialty stores with growth prospects have turned into catnip for investors in an overall retail marketplace that is not expected to show any significant growth for years. The combination of pent-up demand for deals following the financial crisis and readily available financing is expected to keep the M&A market hopping this year.

McKinsey & Co. estimated that private equity firms have as much as $100 billion that could be put to work in retail. Leonard Green & Partners inked a $1.6 billion deal to take Jo-Ann Stores Inc. private last month and, in November, the firm teamed up with TPG to acquire J. Crew Group Inc. for $3 billion. Bain Capital Partners also snatched up The Gymboree Corp. for $1.8 billion in November.

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