DISCUSSION

Private Equity Firms Agree to Buy J. Crew

November 24, 2010Written by George Anderson

J. Crew has succeeded in recent years with a brand quality approach even as many others have gone the price first and last route. The First Lady, Michelle Obama, wears the company's clothes and investors have liked (for the most part) the chain's business and stock performance.

As it turns out, private equity firms TPG Capital and Leonard Green & Partners are also admirers of the way Mickey Drexler and company have gone about their business. The two investment firms have agreed to acquire J. Crew in a deal worth roughly $3 billion or $43.50 a share in cash to make the deal. TPG will take a 75 percent stake in the merchant and Leonard Green will acquire the rest.

The price being paid for J. Crew represents a premium of 29 percent to the company's average closing price over the past month. The deal, however, was well below J. Crew's 52-week high.

Mr. Drexler, chairman and CEO of J. Crew, said in a press release, "I have always said, we are in this for the long term and we do what we do day in and day out so we can deliver the best possible products to our customers. TPG Capital, with whom we have a long working relationship (13 years), along with Leonard Green & Partners, are both well respected private investment firms whose substantial resources and experience will enable us to invest in our future growth."

Brian Sozzi, an analyst with Wall Street Securities, wrote in a client note that TPG Capital and Leonard Green were "getting a strong management team led by Mickey Drexler, a productive mall-based store portfolio, and a growing outlet business."

Discussion Questions: Were you surprised by J. Crew's decision to sell? What do you expect to happen now that it is owned by TPG Capital and Leonard Green & Partners?

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