It is no great surprise that the much-owned Neiman Marcus has been sold by its private equity owners TGP Capital and Warburg Pincus. They had tried to take the U.S. luxury retailer public in June but weren’t getting any encouragement from investors that they could sell it at a valuation they liked.
The proposed $6 billion deal with the U.S. investment group Ares Management and the Canada Pension Plan Investment Board gives the private equity firms closer to what they were looking for — and a clean break from an investment bought in 2005 for a top-of-the-market $5.1 billion. That is longer ownership than the five-to-seven years typical of a private equity investor, but has given TGP and Warburg Pincus time to get out more or less whole.
The new proprietors, who will be equal partners (with existing management holding an unspecified minority stake), are betting on the luxury retail market in the U.S. picking up along with the rest of the economy. Neiman Marcus has 41 department stores under its own name and also owns New York’s upscale Bergdorf Goodman as well as the Last Call chain of mall outlet stores.
The 2008 financial crisis was hard on Neiman Marcus, sending it into the red to the tune of $668 million on sales that plunged more than a fifth from the previous year to $3.6 billion. Sales and profits have since recovered, if modestly. Revenue for the 12 months to April was up 6.5% on the same period a year earlier at $4.5 billion.
Chief executive Karen Katz has sought out younger customers with the Cusp store-in-a-store fashion lines, started online sales in China through taking a stake in e-commerce specialist Glamour Sales, and has increased the number of Last Call outlets. Katz and the rest of her management team will be staying on with the new owners. That suggests more of the same, with increased emphasis on its expanding mobile digital marketing and retailing, and on growing its international customers, though through clicks more than bricks.
The new owners say they will supply new capital to support growth, likely through debt (Ares’ speciality). Canada Pension Plan is one of the world’s largest investors in private equity and is increasing taking a leading role. For its part, Los-Angeles-based Ares has plenty of retailing investment experience, though mainly at the other end of Main Street. The 99¢-Only Stores are among those in its portfolio.
This is the second Canadian venture in to U.S. luxury retailing in recent months. Hudson’s Bay Co. (HBC) agreed to buy Saks Inc. for $2.4 billion in July, combining Canada’s leading department store chain with Saks’ Lord & Taylor and Saks Fifth Avenue brands.