Children’s Place Is Takeover Target Fit for an LBO: Real M&A
2015-03-13 17:36:50.269 GMT
(For a Real M&A column news alert: {SALT REALMNA <GO>}.)
By Brooke Sutherland
(Bloomberg) -- Private-equity funds may take their hunt for
retail buyout targets to the playground.
Children’s Place Inc., the $1.3 billion seller of clothing
for youngsters, jumped the most in more than three years
Thursday after a pair of activist investors called on it to
explore a sale. The company is a logical private-equity target
because it’s cheap, has little debt and is in the sweet spot of
less than $6 billion in enterprise value.
The company has already been implementing some of the
changes that Barington Capital Group and Macellum Advisors are
pushing for, including updating its antiquated allocation and
inventory-management systems and closing underperforming stores.
That process could be accelerated, which would help improve
Children’s Place’s lagging margins, said Susan Anderson of FBR &
Co.
“It definitely looks attractive from an LBO perspective,”
Anderson said in a phone interview. There’s still “low-hanging
fruit” for private-equity firms to profit from.
Children’s Place could fetch about $70-a-share based on
recent retail deals, a 20 percent premium to its average price
in the last month, said Oppenheimer Holdings Inc. Even after
this week’s gains, the Secaucus, New Jersey-based company trades
at a lower multiple of revenue than most other similar-sized
U.S. apparel retailers, according to data compiled by Bloomberg.
“The public market is not rewarding them for the largest
market-share positioning in the kid’s category in specialty, and
the operating-margin opportunity down the road,” Anna Andreeva,
a New York-based analyst at Oppenheimer, said in a phone
interview.
Children’s Place shares fell 2.2 percent on Friday to
$61.57 at 1:36 p.m. in New York after rising almost 9 percent on
March 12.
CEO Criticized
Barington and Macellum say that the discount is because of
investor concern over the company’s “deteriorating operating
performance since 2010 under the leadership” of Chief Executive
Officer Jane Elfers. The activist investors criticized
Children’s Place’s poor merchandising and inventory management
and questioned Elfers’ “managerial expertise.”
Norman Matthews, chairman of the board, said in a statement
that was read on the company’s earnings call Thursday that
Children’s Place appreciates constructive input from all
shareholders and will review the letter. He added in the
statement, which was read by Group Vice President of Finance Bob
Vill, that the board firmly believes Elfers “has done an
excellent job and is the right leader for our company.”
Some Progress
Children’s Place has been making progress on efforts to
improve itself. The company last year rolled out a new
enterprise resource-planning system to help it better manage the
business. The kids clothing retailer said Thursday that it was
increasing the number of planned store closures to 200 through
2017, up from a targeted 125 through next year.
Still, the changes are taking longer than most would have
hoped, Andreeva said. Children’s Place’s gross margin of 35
percent trails the median for U.S. specialty-apparel peers and
its operating margin is one of the lowest in the group.
“Children’s Place doesn’t have systems that other
retailers have used for, I want to say, 10 years,” she said in
a phone interview. “They’re very, very much behind the curve.”
A private-equity firm with retail expertise could boost
profitability by accelerating the upgrade and store closures,
and then increase growth by ramping up international expansion,
according to Andreeva. With little debt and a high free-cash-
flow yield, there’s plenty of room for a buyout firm to leverage
it up.
“They’re actually fixing the stuff that’s wrong with it
now so it’s not like it’s totally a broken story,” Anderson of
FBR said. The company could just use a bit of private-equity
help, she said.
For Related News and Information:
LBO Comeback Nears as PetSmart Leads Busy Two Months: Real M&A
Pier 1, Dick’s Are Retail Buyout Picks After PetSmart: Real M&A
PetSmart Activists Wave Cash Flow at Private Equity: Real M&A
Private-equity news: NI PE <GO>
Top deal news: DTOP <GO>
Real M&A column: NI REALMNA <GO>
To contact the reporter on this story:
Brooke Sutherland in New York at +1-212-617-0448 or
bsutherland7@bloomberg.net
To contact the editors responsible for this story:
Beth Williams at +1-212-617-2307 or
bewilliams@bloomberg.net
Elizabeth Wollman
2015-03-13 17:36:50.269 GMT
(For a Real M&A column news alert: {SALT REALMNA <GO>}.)
By Brooke Sutherland
(Bloomberg) -- Private-equity funds may take their hunt for
retail buyout targets to the playground.
Children’s Place Inc., the $1.3 billion seller of clothing
for youngsters, jumped the most in more than three years
Thursday after a pair of activist investors called on it to
explore a sale. The company is a logical private-equity target
because it’s cheap, has little debt and is in the sweet spot of
less than $6 billion in enterprise value.
The company has already been implementing some of the
changes that Barington Capital Group and Macellum Advisors are
pushing for, including updating its antiquated allocation and
inventory-management systems and closing underperforming stores.
That process could be accelerated, which would help improve
Children’s Place’s lagging margins, said Susan Anderson of FBR &
Co.
“It definitely looks attractive from an LBO perspective,”
Anderson said in a phone interview. There’s still “low-hanging
fruit” for private-equity firms to profit from.
Children’s Place could fetch about $70-a-share based on
recent retail deals, a 20 percent premium to its average price
in the last month, said Oppenheimer Holdings Inc. Even after
this week’s gains, the Secaucus, New Jersey-based company trades
at a lower multiple of revenue than most other similar-sized
U.S. apparel retailers, according to data compiled by Bloomberg.
“The public market is not rewarding them for the largest
market-share positioning in the kid’s category in specialty, and
the operating-margin opportunity down the road,” Anna Andreeva,
a New York-based analyst at Oppenheimer, said in a phone
interview.
Children’s Place shares fell 2.2 percent on Friday to
$61.57 at 1:36 p.m. in New York after rising almost 9 percent on
March 12.
CEO Criticized
Barington and Macellum say that the discount is because of
investor concern over the company’s “deteriorating operating
performance since 2010 under the leadership” of Chief Executive
Officer Jane Elfers. The activist investors criticized
Children’s Place’s poor merchandising and inventory management
and questioned Elfers’ “managerial expertise.”
Norman Matthews, chairman of the board, said in a statement
that was read on the company’s earnings call Thursday that
Children’s Place appreciates constructive input from all
shareholders and will review the letter. He added in the
statement, which was read by Group Vice President of Finance Bob
Vill, that the board firmly believes Elfers “has done an
excellent job and is the right leader for our company.”
Some Progress
Children’s Place has been making progress on efforts to
improve itself. The company last year rolled out a new
enterprise resource-planning system to help it better manage the
business. The kids clothing retailer said Thursday that it was
increasing the number of planned store closures to 200 through
2017, up from a targeted 125 through next year.
Still, the changes are taking longer than most would have
hoped, Andreeva said. Children’s Place’s gross margin of 35
percent trails the median for U.S. specialty-apparel peers and
its operating margin is one of the lowest in the group.
“Children’s Place doesn’t have systems that other
retailers have used for, I want to say, 10 years,” she said in
a phone interview. “They’re very, very much behind the curve.”
A private-equity firm with retail expertise could boost
profitability by accelerating the upgrade and store closures,
and then increase growth by ramping up international expansion,
according to Andreeva. With little debt and a high free-cash-
flow yield, there’s plenty of room for a buyout firm to leverage
it up.
“They’re actually fixing the stuff that’s wrong with it
now so it’s not like it’s totally a broken story,” Anderson of
FBR said. The company could just use a bit of private-equity
help, she said.
For Related News and Information:
LBO Comeback Nears as PetSmart Leads Busy Two Months: Real M&A
Pier 1, Dick’s Are Retail Buyout Picks After PetSmart: Real M&A
PetSmart Activists Wave Cash Flow at Private Equity: Real M&A
Private-equity news: NI PE <GO>
Top deal news: DTOP <GO>
Real M&A column: NI REALMNA <GO>
To contact the reporter on this story:
Brooke Sutherland in New York at +1-212-617-0448 or
bsutherland7@bloomberg.net
To contact the editors responsible for this story:
Beth Williams at +1-212-617-2307 or
bewilliams@bloomberg.net
Elizabeth Wollman