NEW YORK — Let the bidding for Barneys New York begin, now that investment bankers are pulling together the prospectus.
This story first appeared in the July 2, 2004 issue of WWD. Subscribe Today.
Whoever ends up with the Barneys New York name, synonymous with edgy fashion, walks away with a prize. The core Barneys nameplate has cachet appeal, and the newer Co-op concept has potential for expansion in select markets.
Financial sources on Thursday said the selling price for the upscale fashion chain is likely to be in the $325 million range, or a 9.5 multiple of Barneys’ earnings before interest, taxes, depreciation and amortization of $34.5 million for the year ended Jan. 31, 2003.
Another way to value the specialty chain, particularly if there’s a reasonable justification for growth, would be to give it a minimum multiple of one to one and a half times annual sales, according to a hedge fund investor. The latter pricing structure would peg the sale price at a minimum of $409 million and as high as a $600 million-plus range. Whether Barneys could get such a price, he said, would depend on the potential for growing the Barneys chain and whether the growth evolves from the core nameplate or its Co-op store.
Names in the hat to make an acquisition, according to analysts and Seventh Avenue power brokers, include Federated Department Stores and May Department Stores as well as LVMH, Neiman Marcus Group, Galen Weston and Dickson Concepts.
May Department Stores is fresh off its $3.24 billion Marshall Field’s buy and may consider another specialty operation to expand its bridal group, while Federated is flush with cash, having built up a sizeable war chest of more than $900 million.
“It’s a high-end luxury that makes sense for Saks,” said Bill Smith, president of Financo. “The fit is good, but that doesn’t mean the timing is right. They just brought in a great team to focus on their own business and this could be a distraction. It could make sense for Neiman’s, too. I think it is a very, very good franchise that can be expanded, if done appropriately. That’s the part that would make it interesting for Federated.”
There’s also talk of foreign investors taking a look at the book. These could be companies with plenty of cash that are ready to try their hand at American retailing.
One name that pops up on the short list of potential foreign investors is Hong Kong-based Dickson Concepts Ltd., which made a try for Barneys during its three-year tour of duty in bankruptcy court that started in 1996.
Charles M. Jayson, president and chief executive officer of Dickson North America, declined comment on Barneys, but in a statement said, “While we can’t comment regarding potential investment or acquisition activities, it is fair to say that we will proactively explore all opportunities that we believe would be additive to our global portfolio within the focus of upscale and luxury brands.? Those businesses that would benefit from our existing operations receive the highest priority, as it will allow us to continue to provide stellar return on invested capital.”
Another name making the rounds is Canada’s Holt Renfrew, owned by Galen Weston, who also has the controlling stake in U.K. luxury department store Selfridges. A spokeswoman for Galen Weston declined to comment on the speculation.
The other key question is how soon the walk-throughs and due-diligence process will take. Based on prior deals, the length of time varies. It depends on when the financial book comes out for review.
Executives at the two financial advisory firms hired by Barneys, Peter J. Solomon Co. and Morgan Stanley, declined comment.
A hedge-fund investor, who believes the buyer will be a strategic player instead of a financial firm, doesn’t expect a lengthy process. “The books can be done fairly quickly. Once that’s done, the first round of bids can come in a few weeks, with a second round after some time for due diligence. At a minimum, it could be over in three to four months.”
Barneys, according to firms in the fashion industry, is a much healthier company now than when it was run by the grandsons of its founder, Barney Pressman.
Pressman founded the company in 1923 with a store on 17th Street and Seventh Avenue selling discount men’s wear. His son, Fred, took over and transformed Barneys into the first American store to offer European men’s wear in 1968. The retailer underwent another transformation later when Fred’s two sons, Gene and Robert, added women’s wear to the merchandise mix downtown and took the focus upscale by moving the flagship to Madison Avenue. Their grand plan to expand throughout the U.S. and overseas, which included a deal with Japanese department store retailer Isetan, resulted in cash flow problems and, ultimately, a petition for bankruptcy court protection in January 1996.
The Chapter 11 was the beginning of the end of the Pressman dynasty, a family once viewed as fashion royalty. Barneys was bailed out of bankruptcy in January 1999 by two fund investors, Whippoorwill Associates and Bay Harbour Management. The two firms own about 80 percent of Barneys, according to Securities and Exchange Commission documents filed on April 30. Isetan has about a 6 percent stake and the remaining shares are traded on the over-the-counter exchange.
Gary Wassner, president of factoring firm Hilldun Corp., said, “I think the Barneys franchise is extremely valuable. It would make a wonderful addition for Federated Department Stores or even the Neiman Marcus Group.”
According to Wassner, the two fund investors have done a great job turning around the firm. He remembers how difficult it was shortly before the bankruptcy when Barneys was known more for not paying on time or not at all than for its high fashion.
“My clients sell to Barneys and I must say, the retailer pays beautifully. It pays better than any retailer on the market. The terms are net-30 days. There are very few deductions and very few markdowns,” Wassner said.
Walter Loeb, a retail consultant of the firm that bears his name, observed, “This is a really interesting situation, with the sale likely to go well for the two fund investors. In the last year, Barneys’ chairman Howard Socol has done a great job fine-tuning the operations. One major move was to order merchandise on a more timely basis, rather than a year ahead, as has been the chain’s practice.”
While it is still uncertain as to which firms will make a play for Barneys, Loeb said he expects Socol to stay at the specialty chain for “some time to come.”
Linda Kristiansen, retail analyst at UBS, wrote in a research note that potential acquirers include Federated, Neiman Marcus, Saks Inc. and Nordstrom Inc. All have debt-to-capital ratios of 35 to 40 percent, with the exception of Neiman’s, which has a ratio of 15 percent.
Kristiansen noted that Nordstrom has “limited experience managing a pure-luxury business,” and has indicated previously a preference for a selective real estate expansion for the Nordstrom brand than the acquisition of the new nameplate. She wrote that the other three could benefit from an additional upscale brand in their portfolio. “Additionally, they have considerable experience in managing relationships with luxury vendors. Also, for Federated, a Barneys acquisition would represent a further move upscale in merchandise offerings,” she wrote.
According to Wendy Liebmann of WSL Strategic Retail, putting a company up for sale now makes perfect sense. “Luxury has been one segment that has been doing well, so much so that one wonders how long luxury sales will continue at the current pace. Also, after all this excitement and frenzy over the sale of Marshall Field’s, one thinks that the retailers have money to spend.”
Liebmann believes that there could be a growth story for Barneys’ Co-op, one that has the concept stores surrounding a handful of Barneys locations. Even so, “we’re talking 100 Co-ops, not thousands,” she said.
Retail sources said that, as time passes and Barneys’ performance continues to improve, the store becomes more appealing and saleable.
One concern for any potential buyer, according to retail sources, is that Barneys has a very narrow customer base and therefore limited expansion potential. “Why would Federated want to fool around with it? How much can it really do for them?” asked a former Federated executive. “Barneys has gone further [with store openings] than I would have thought, but I don’t know how many legs it really has.”
Another possibility, retailers suggested, is that Socol would consider leading a management takeover. Or he could join with Allen Questrom, currently chairman and ceo of J.C. Penney Co., who is planning to retire next year. Questrom is the former chairman and ceo of Barneys, and brought Socol on board to run Barneys when he left to head Penney’s. Questrom is said to think very highly of Socol. Both executives were traveling Thursday and could not be reached for comment.
Meanwhile, Standard & Poor’s Ratings Services on Thursday placed its ratings of Barneys, including the ‘B’ corporate credit rating, on CreditWatch with developing implications. The agency said the action was in line with the company’s potential sale, and that it will “review any proposed transaction and its impact on the company’s credit quality.” According to S&P, Barneys has $91 million in funded debt as of May 1.
— With contributions from David Moin, New York, and Samantha Conti, London