Industry Thoughts | ACG And Lobbying, Part II

Back in December, I wrote a post (which also got on The Term Sheet) curiously questioning why ACG (the Association for Corporate Growth) does not have a lobbying arm within the organization. I went to yesterday's ACG NY Healthcare Conference and got to meet with some heads. I asked about the lobbying movement and I got these answers:

• The lobbying movement will strictly be informational; the organization voted to not make a more aggressive move but to continue sharing information about private equity industries and how PE has been beneficial through job creation, production efficiency, etc.
• The reason why there also hasn't been an aggressive move is because members of ACG aren't only execs from private equity firms. You have C-level executives, service providers, and people from other random areas, so you can't entirely say that ACG can solely lobby for private equity.
• There also has been a movement within ACG to its members to connect with Congress; members should be contacting Senators and Representatives to give them a lesson in how private equity has been helping the state. In other words, there are companies that have key facilities in the represented states that are a) partly or majority owned by private equity firms and b) have brought a significant number of jobs to the state itself.

It was a good answer from the execs I talked with. I hope that the "talk to your Senator" movement gets stronger because, well, all we have going on now is some mid-market PE execs trying to fight the SEC registration requirement in new legislation.

Good luck, ACG!

Conference Notes | The 2010 ACG CT Private Equity Expo

Man, it's been a while since I've started my day at 5 AM. One Metro North train later, I made it to the Stamford Marriott for the 7th annual ACG Connecticut Private Equity Expo. With more than a dozen private equity firms exhibiting, I was able to catch up with some clients and contacts, make some new contacts, and see what's been going on regarding deal flow.

Moreover, Ramsey Goodrich, the president of ACG CT, presented some results from the ACG-Thomson Reuters DealMakers Survey. Luckily, PEHub already posted the results in text form here.

Some quick takeaways:

• Closing Deals Before Year-End: I asked many firms on how many deals they're trying to close before the end of 2010. I got various answers from "We're looking for new deals" to as many as 3. Deal flow for mid-market firms is at a case-by-case basis.
• Tax Situation: Some firms were more worried than others about the current tax situation, but not all of them mentioned it when we talked. A few mentioned that they're not worried at all, as they believed it's going to drag along for at least another 6 months.
• Strategic Buyers' Market: A whopping 74% of respondents on the DealMakers Survey said that most buyers are going to be strategic, while 11% said it would be moreso private equity firms.   

A great conference overall, and if you're curious about which firms were there, feel free to ask! 

A side note to ACG Connecticut: For the next event, please post the agenda on the event website. People were fine that they had to wait outside 45 extra minutes so private equity firms could talk amongst themselves, but at least let us know that that's going to happen beforehand.

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.

Conference Notes | The 2010 ACG Retail Conference

One thing I've been doing more often for my job is attending conferences to see how PE firms (clients, prospective ones, and other firms) are doing and what's been going on lately with them. When I go to a conference, I'll put some key takeaways in posts like this one. Enjoy!


On November 18th, the Association for Corporate Growth's New York Chapter hosted a Retail and Consumer industry-focused conference entitled "Retail/Consumer Dealmaking - The New Frontier." Located in the New York Athletic Club, it attracted multiple PE firms and service providers and had 2 panels, 1 dedicated to senior lenders and another for the private equity side. You can find the panel bios here.
It also had a great one-on-one lunch conversation with Rick Perkal of Irving Place Capital (formerly Bear Stearns Merchant Banking). It's nice to hear what Rick has to say as he's one of the few executives out there who's a blunt and straight-forward speaker about PE's involvement in the Retail industry, along with what Irving Place has been up to. They've been busy too; they closed 6 deals recently!

Some takeaways:

• Retail is in a "periscoping" stage: Michael O'Hara of Consensus Advisors said that ther ewas less growth and inventory amongst retailers in 2008, and you saw more cleaving off of growth through store closures, layoffs, and restructuring. In 2010, retailers are popping their heads out, but are still pretty quiet in terms of growth.  It's almost a "quiet normalcy."
• Inventory turnover is more important than ever: Tim Tobin of GE Capital mentioned that if retailers cannot sell a product, they will mark it down to a point that they can get rid of inventory ASAP to restock with new/successful products. Dana Telsey of Telsey Group also mentioned a "need for speed" regarding inventory turnover, and she listed multiple retail areas that have had different strategies, from outlet malls and big-box retailers to specialty retail stores like J.Crew.
• "Newness" is key: Retail in general has low barriers to entry. How can retailers survive against the Wal-Marts and Targets of the world? Simple: distinguish yourself. Jeff Edelman of RSM McGladrey noted how consumers are going from "desperate to rational" and that while stores like TJ Maxx and Marshall's were not their first choices for clothes, it is now because of their product selection. Macy's and Bloomingdale's are also recognizing how to promote luxury and luxury-style brands and products to attract more customers, especially with the holiday season coming up. Ms. Telsey also mentioned "competitive newness," citing Aeropostale's $3 t-shirts and the onslaught of H&M, Zara, and Uniqlo as examples.
• Middle-market growth is still tempered: Burt Feinberg of CIT Capital Finance listed EBITDA multiples of mid-market retailers ($10-$30MM EBITDA) at 2.5-3.5x, whereas large-cap ($100-$300MM EBITDA) is more around 5x. The middle market retail sector is going to grow much slower, but it again depends on how they can distinguish themselves from big-box competitors.

(If you have more questions about the conference, feel free to let me know in the Comments feed!)

Here's my take on PE (particularly middle market) and retail: 

• While margins are much higher in the luxury goods space, it's much more dangerous as the target consumer is emotionally driven towards buying. In other words, they have the money to spend, but their emotions will only determine whether they're actually willing to  shell out a few hundred dollars for a pair of Louboutins, a Burberry trench, or a Tiffany's necklace. 
• I agree with Dana on looking for middle-market specialty retailers that have an edge in terms of products they offer; this is why Hot Topic (the goth store) is still around, for example. 
• Another area to consider is European small and mid-size brands like Cath Kidston that are slowly coming to the USA. Mall operators want to fill spaces, and the pop-up shop concept is growing (and even companies owned by Sun Capital Partners, as Aaron Wolfe said, are taking advantage of it).

Overall, it was a great conference. Kudos to ACG New York and the other sponsors (I can't remember them all, sorry!) that hosted the event. Plus, the food at the NYAC was pretty good!