Timing is everything — and maybe even more so for private equity.
There is a broad range of private equity investors with different approaches, funding methods and degrees of savvy. But they all operate on a three-part plan that at its most basic level includes: Betting on a company to invest in, holding on and then selling it off — hopefully at a big profit.
Most private equity firms look to keep their investments for three to five years, funding growth, guiding management as they develop the business or simply staying out of the way and letting the company flourish.
But companies bought at the height of the market can be hard to flip at an acceptable price. Betting on fashion brands is also inherently risky as styles come and go and designers and marketers with their fingers on the pulse of consumer preferences suddenly lose touch.
And the world has changed.
Fashion and retail has shifted dramatically over the past five years as Amazon roared into the sector with full force, the wholesale dynamic was disrupted and social media and mobile upset the advertising game.
One private equity investor said it takes time to transform a company, bring in top-tier talent and whip operations into shape.
“Everybody continually underestimates how hard it is to do things, to change things,” the investor said.
And the bar is rising.
“Think how much more sophisticated you have to be as a company to be successful” in today’s more digital market, the investor said. “Companies need more time to retool and reinvent themselves.”
In some instances, getting in early enough or waiting long enough can pay off.
Tresalia Capital scored a stake in Tory Burch in 2009 and has held on as the business grew. While the IPO that some looked for from the company never came, Tory Burch has most definitely gained in value. Tresalia is said to be working with Goldman Sachs to see just how much its stake is worth now.
Not everyone is so lucky.
TPG Capital and Leonard Green & Co. bought control of J. Crew in 2010 and have had a tough go of it as the company struggled under its debt load and sought to reconnect with shoppers. The firm negotiated with its lenders for some extra breathing room and appointed Jim Brett as chief executive officer last year.
TPG and Leonard Green are still waiting to get their money back.
Some investments take longer than others, but certainly any investment that’s more than five years old is being watched closely — both by the private equity bigwigs wanting to make their return and by the marketplace, looking for opportunities.
|Private equity firms typically plan on waiting three to five years before unwinding their investments — sometimes they wait much longer (whether by choice or not).|
|Company||Investor||Stake||Date of Investment||Duration|
|Tory Burch||Tresalia Capital||Minority||July 24, 2009||9 years, 1 month, 4 days|
|Charlotte Russe Holding Inc.||Advent International||Majority||Aug. 24, 2009||9 years, 4 days|
|J. Crew Group Inc.||TPG Capital and Leonard Green & Partners||Majority||Nov. 23, 2010||7 years, 9 months, 5 days|
|All Saints Retail||Lion Capital||Majority||May 5, 2011||7 years, 3 months, 23 days|
|Scotch & Soda||Sun Capital Partners||Majority||July 12, 2011||7 years, 1 month, 16 days|
|John Varvatos Enterprises Inc.||Lion Capital||Majority||March 8, 2012||6 years, 5 monhts, 20 days|
|Zadig & Voltaire||TA Associates||Minority||April 16, 2012||6 years, 4 months, 12 days|
|Cole Haan||Apax Partners||Majority||Nov. 16, 2012||5 years, 9 months, 12 days|
|Tory Burch||General Atlantic and BDT Capital Partners||Majority||Dec. 31, 2012||5 years, 7 months, 28 days|
|Rag & Bone Inc.||Irving Place Capital||Minority||Jan. 3, 2013||5 years, 7 months, 25 days|
|Source: S&P Capital IQ|