OLD Media Moves

Neiman Marcus changing hands

September 9, 2013

Posted by Liz Hester

In another sign the retail industry is heating up or that private equity shops need to show returns, Neiman Marcus is going to change hands again.

Here’s the New York Times story:

The owners of Neiman Marcus are in discussions to sell the luxury retailer to a group led by Ares Management and a Canadian pension plan for about $6 billion, a person briefed on the matter said on Sunday.

Talks between the Ares-led group and Neiman’s primary owners, Warburg Pincus and TPG Capital, are continuing and may still fall apart, this person cautioned.

If a deal is reached, it would end nearly eight years of control by Warburg and TPG, who had been looking to exit their investment for several months. The two investment firms filed to take Neiman public this spring, but also began pursuing an outright sale that would help them shed their ties to the company more quickly.

By exploring a sale or initial public offering of Neiman, the two firms became the latest buyout shops hoping to capitalize on strong markets to sell their investments. During the sales process, advisers to Warburg and TPG held discussions with a number of potential suitors, including Ares and the Canadian Pension Plan Investment Board; CVC Capital and Kohlberg Kravis Roberts.

Warburg and TPG had considered selling Neiman, whose luxury wares range from Alexander McQueen dresses to custom jet packs, a number of times, but held on when the financial crisis shook up the world of retail. The retailer has since bounced back, reporting $4.3 billion in sales last year, compared to $3.6 billion in 2009.

According to the Wall Street Journal, the $6 billion price would be a good return for TPG and Warburg Pincus:

A sale of Neiman to the private-equity firms for more than $6 billion would be considered a decent outcome for its owners. Neiman, purchased by private-equity firms TPG and Warburg Pincus LLC for $4.9 billion in 2005, has been looking for an outright buyer for the retail chain while simultaneously laying the groundwork for an initial public offering of stock. The retailer’s owners also include private-equity firm Leonard Green & Partners LP.

In recent weeks Neiman held discussions with the team of Ares and the CPP Investment Board, as well as KKR & Co. and CVC Capital Partners Ltd. about a possible sale, people familiar with the matter have said. Ares is currently an owner of 99¢ Only Stores, Floor & Decor Outlets of America Inc. and Smart & Final Stores LLC, according to the Ares website. Neiman also sounded out sovereign-wealth funds for a purchase of the chain earlier this year to no avail, people familiar with the matter have said.

Buyout firms usually prefer selling companies they own instead of taking them public so they can realize investment returns immediately. Selling restrictions and stock-market fluctuations associated with IPOs can make cashing out at an attractive price a longer, more difficult process for private-equity firms. The result is that buyout firms often solicit outright buyers even as they make IPO preparations.

Reuters wrote that selling to other investors likely meant that the private equity firms were uncertain about the stock market value of Neiman:

The decision to pursue a sale to other private equity firms could underscore uncertainty by its owners over how the stock market would value Neiman, as well as a desire to monetize on their investment more quickly.

Last month, Neiman rivals Saks Inc (SKS.N) and Nordstrom Inc (JWN.N) each reported disappointing sales gains for the second quarter, raising concerns that even high-end shoppers were cutting back on spending.

Saks, which agreed in July to be sold to Hudson’s Bay Co (HBC.TO) for $2.4 billion, as well as Neiman and Nordstrom, have largely stopped opening new department stores, instead focusing on their respective bargain outlet chains.

Neiman returned to its pre-financial crisis sales levels this year, reporting revenues of $4.5 billion in the 12 months ending April 27, up 6.5 percent from a year ago, and adjusted earnings before interest, tax, depreciation and amortization of $623 million.

While a deal like this has little to do with everyday investors, it does send a signal that private equity firms may be distrustful of taking companies public or that the market may still be struggling to value some companies.

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