Let’s make a (private equity) deal!
BC Partners’ $8.6 billion deal last month to acquire PetSmart has created a speculation boom regarding which retailer will be the next target of a leveraged buyout. The first four to hit the rumor mill, according to separate reports by Bloomberg News and Reuters, are Bed Bath & Beyond, Dick’s Sporting Goods, GameStop and Pier 1 Imports.
According to Reuters, Dick’s is in the early stages of discussions with interested parties. The $6 billion sporting goods chain operator is seen as an attractive target because the company’s shares have not kept up with peers in the market. Of course, merely the hint of a prospect of a deal was enough to drive Dick’s share price up in trading yesterday.
Dick’s Sporting Goods’ third quarter total same-store sales were up 1.1 percent, with its namesake chain up 1.7 percent and its Golf Galaxy business down 8.9 percent. Analyst expectations are the company still has many years of growth ahead.
Both Bloomberg and Reuters reported that the combination of equity firms with plenty of cash on hand and low interest rates make now a good time to buy. The retail business, David Strasser, an analyst with Janney Montgomery Scott, told Bloomberg, is "a category that people love to come to for buyouts."
Discussion Questions
Do you think the conditions are right for more retail acquisitions? Do retailers typically benefit as a result of being acquired by private equity firms?
It is a ripe time for these retail acquisitions, since a lot of retailers have grown by many acquisitions of their own. They become a strain on the management team as well as the stores to carry out too many changes too often. All of this can be seen in the stock price, too bad. What gets me upset is how the private equity firms only see black and red on the books. They tear away the moral, the goodwill, the charitable works and the customer service levels since they cannot be measured on the books. Once they get the red all black again and at all costs, they divide up the company and sell the parts. We have seen it happen too many times. Too few companies, Kroger being one, survive private equity acquisitions. What is good for Wall Street is not always good for retailers.
In the early 1990s the self-appointed business maven Donald Trump proclaimed that “From now on Cash is King” and this seems more true now than ever before. Mergers and acquisitions are the byproduct of the economy’s need for cash. It might be better described as corporate redistribution of vital economic nourishment essentials—money. Another sign of just how bad things are getting with many companies searching for a means to survive this so-called economic recovery untill things really do start to get better.
Absolutely and usually. The transition to e-commerce, m-commerce and omni-channel retailing is a challenging one and could be well served out of the spotlight of the public markets for many retailers. Nothing wrong with managing these changes in private and then coming back to the public markets if desired.
I do believe conditions are right for retail acquisitions. Interest rates are very low, the economy is more robust and if gas prices stay low, consumers will have more spending power.
The ability of a retailer to benefit is an individual situation. Many times the people who made the business successful get washed out in the transition, and while equity firms have resources to invest, the ability to steer a company through a change depends on the quality of leadership retained or put in place.