Tuesday, November 23, 2010

Industry Thoughts | After J. Crew

UPDATE I: I've added pieces on the J.Crew deal from various publications here. Enjoy articles from PEHub, the WSJ's Deal Journal, and all three DealBook pieces (so far).
UPDATE II: Thanks to Dan Primack at Fortune for finding this CNBC piece by John Carney on the relationship between TPG and J. Crew 

Wow, 2 posts in one day. I feel so productive.

...but the main reason I'm writing another is because of Andrew Ross Sorkin's DealBook piece on who's next after J.Crew. Paul Lujenez of Nomura lists Abercrombie & Fitch and Ross Stores as 2 top buyout places with Lululemon Athletica and Tiffany & Co. rounding out the list. Some quick big-picture thoughts on each:

  • Abercrombie: The company seems to keep bleeding cash. Case in point: watching countless tourists walk into the 5th Ave. store but few actually buy anything. It would make sense for a Leonard Green-style firm to take it over, it really needs help.
  • Ross: Well balanced, especially with more consumers moving towards the TJ Maxxes and Marshalls as their primary clothing places. Good call.
  • Lululemon: The company has nowhere to go but up. Simple business model, and the yoga trend won't die anytime soon, it actually has a chance to grow exponentially if it can be a more popular workout for people who are significantly overweight and are looking for a good and gradual entry to burning it off.
  • Tiffany: Not much room for growth/expansion. CEO Michael Kowalski has done a great job on the restructuring front.
One area I think would be great for buyout firms? Smaller, Europe-based firms (like Cath Kidston) that haven't expanded to the USA yet and have distinguished themselves from other specialty retail firms. I really can't think of any other retail firms that just seem attractive right now...

Industry Thoughts | A Major Win For J. Crew

It was only a matter of time.

J. Crew is potentially going to be taken private, this time by its old owner TPG and with some help from Leonard Green and CEO Millard "Mickey" Drexler. With DealBook getting the scoop, the specialty retail company is fetching around $2.8 billion with a share price of $43.50. The stock is soaring, hitting above $45.00. Yes, it's only been Day 1 of the announced deal, so talks could go awry...

...which is why I refer to DealBook reporter Michael de la Merced's piece on TPG getting a little selfish. By recutting the deal today, the private equity firm that once owned J. Crew and brought in Drexler may have actually pissed him off. There are a LOT of private equity firms out there that have strong backgrounds in retail, apparel, and specialty consumer items. 

Personally, I hope that Leonard Green gets a bigger stake (and say) in the deal. They are the first private equity firm that comes to mind which could work closely with Drexler to maintain the company's "rockstar" status ever since it was turned around from a failing preppy label (that I detested) to a fashion-forward affordable store chain (where, well, 50% of my wardrobe is now from). 

J. Crew pioneered the concept of "contracts, contracts, contracts." From Sperry and Red Wings to specialty jewelers, shirt companies, and even fabric brands, the company made basic clothing popular again and exposed general consumers to brands they would almost never consider going to their stores for. Add promotions, a talented set of executives, and creating specialty stores for menswear (J.Crew Men's), womenswear (Madewell) and now weddings, and you have a specialty retail firm playing like a high-end designer.

It'll be interesting to watch this deal unfold. Will Mickey look for another buyer? Can Leonard Green get more of their money's worth? We'll see...

UPDATE: The deal has been confirmed (thanks again to Mr. de la Merced). The go shop period is until Jan. 15th. I'm setting the over/under on competing bids at 2.