By Nivedita Bhattacharjee
BANGALORE, Oct 11 (Reuters) - Gymboree Corp said it is selling itself to buyout firm Bain Capital Partners for $1.8 billion, as cheap valuations and clean balance sheets make specialty apparel companies attractive takeover targets.
Private equity deal flow has increased in recent months, with funds under pressure to spend money before their investment periods ends and amid concerns about potential tax hikes ahead.
'The timing (for Gymboree) is prudent just because it allows them more flexibility to ramp up the growth of Crazy 8,' Betty Chen, who covers specialty apparel companies at Wedbush Securities, said.
'If companies have a growth vehicle, (going private) presents a great opportunity to grow it in private, incubate it, gain some traction and then take it out again in 2 or 3 years time,' Chen said.
Many observers are expecting Crazy 8, a cheaper, funkier line of children's wear, to be a growth driver at the company.
Gymboree has topped earnings estimates for the past 6 quarters, helped by the popularity of its 'Gymbucks' program, where customers spending above a certain limit receive coupons, which they can then redeem on later purchases.
Analysts think deal could fuel more takeovers in the specialty apparel space, with three analysts naming Children's Place Retail Stores Inc as a possible candidate. Children's Place, which hit a new year-high Monday, closed up 2 percent on Nasdaq, while rival Carter's Inc ended the day up 3 percent on the New York Stock Exchange.
'Specialty apparel companies usually have a lot of cash-flow and the brand equity is also something that is quite difficult to start from scratch ... if you buy a strong brand like Gymboree, that is compelling,' Chen said.
FAIR DEAL
Gymboree shareholders will get $65.40 in cash for each share held; a premium of 23.5 percent to the stock's closing Friday. However, the offer values the company at a 57 percent premium to the stock's trading price before reports on a possible sale of the company made the rounds on Sept. 30.
'The offer is in the range of what we were expecting ... around seven and a half to 8 times EBITDA,' analyst Chen said.
The deal is structured as a tender offer, which typically takes a shorter time to close than a regularly structured deal. A recent deal to take Burger King private was similarly structured.
Analyst Margaret Whitfield of Sterne Agee & Leach said though the offer is not at par with what deals were at before the recession, it makes for a compelling offer.
'I think shareholders will have something to say if an offer like this is turned down,' she said.
The San Francisco-based retailer's shares were trading at about 13 times forward earnings, nearly half the industry average of around 25.
As of July 31, the company, which operates about 1,000 retail stores in the U.S, Canada, Puerto Rico and Australia, had cash in hand of about $132.4 million and zero long-term debt.
The owner of the Gymboree, Gymboree Outlet, Janie and Jack, and Crazy 8 brands said it will solicit acquisition proposals from third parties for a period of 40 days.
Last week, media reports had said Gymboree was planning to auction itself and named Apollo Management, Apax Partners and KKR as possible acquirers.
Goldman Sachs is acting as financial advisor to the special committee of the board.
Gymboree shares closed at $64.83 on Nasdaq.
(Reporting by Nivedita Bhattacharjee in Bangalore, additional reporting by NR Sethuraman, Megan Davies, Anil D'Silva; Editing by Gopakumar Warrier, Anthony Kurian) Keywords: GYMBOREE BAINCAPITAL/ (nivedita.bh@thomsonreuters.com; within U.S. +1 646 223 8780; Outside U.S. +91 80 4135 5800; Reuters messaging: nivedita.bh.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
BANGALORE, Oct 11 (Reuters) - Gymboree Corp said it is selling itself to buyout firm Bain Capital Partners for $1.8 billion, as cheap valuations and clean balance sheets make specialty apparel companies attractive takeover targets.
Private equity deal flow has increased in recent months, with funds under pressure to spend money before their investment periods ends and amid concerns about potential tax hikes ahead.
'The timing (for Gymboree) is prudent just because it allows them more flexibility to ramp up the growth of Crazy 8,' Betty Chen, who covers specialty apparel companies at Wedbush Securities, said.
'If companies have a growth vehicle, (going private) presents a great opportunity to grow it in private, incubate it, gain some traction and then take it out again in 2 or 3 years time,' Chen said.
Many observers are expecting Crazy 8, a cheaper, funkier line of children's wear, to be a growth driver at the company.
Gymboree has topped earnings estimates for the past 6 quarters, helped by the popularity of its 'Gymbucks' program, where customers spending above a certain limit receive coupons, which they can then redeem on later purchases.
Analysts think deal could fuel more takeovers in the specialty apparel space, with three analysts naming Children's Place Retail Stores Inc as a possible candidate. Children's Place, which hit a new year-high Monday, closed up 2 percent on Nasdaq, while rival Carter's Inc ended the day up 3 percent on the New York Stock Exchange.
'Specialty apparel companies usually have a lot of cash-flow and the brand equity is also something that is quite difficult to start from scratch ... if you buy a strong brand like Gymboree, that is compelling,' Chen said.
FAIR DEAL
Gymboree shareholders will get $65.40 in cash for each share held; a premium of 23.5 percent to the stock's closing Friday. However, the offer values the company at a 57 percent premium to the stock's trading price before reports on a possible sale of the company made the rounds on Sept. 30.
'The offer is in the range of what we were expecting ... around seven and a half to 8 times EBITDA,' analyst Chen said.
The deal is structured as a tender offer, which typically takes a shorter time to close than a regularly structured deal. A recent deal to take Burger King private was similarly structured.
Analyst Margaret Whitfield of Sterne Agee & Leach said though the offer is not at par with what deals were at before the recession, it makes for a compelling offer.
'I think shareholders will have something to say if an offer like this is turned down,' she said.
The San Francisco-based retailer's shares were trading at about 13 times forward earnings, nearly half the industry average of around 25.
As of July 31, the company, which operates about 1,000 retail stores in the U.S, Canada, Puerto Rico and Australia, had cash in hand of about $132.4 million and zero long-term debt.
The owner of the Gymboree, Gymboree Outlet, Janie and Jack, and Crazy 8 brands said it will solicit acquisition proposals from third parties for a period of 40 days.
Last week, media reports had said Gymboree was planning to auction itself and named Apollo Management, Apax Partners and KKR as possible acquirers.
Goldman Sachs is acting as financial advisor to the special committee of the board.
Gymboree shares closed at $64.83 on Nasdaq.
(Reporting by Nivedita Bhattacharjee in Bangalore, additional reporting by NR Sethuraman, Megan Davies, Anil D'Silva; Editing by Gopakumar Warrier, Anthony Kurian) Keywords: GYMBOREE BAINCAPITAL/ (nivedita.bh@thomsonreuters.com; within U.S. +1 646 223 8780; Outside U.S. +91 80 4135 5800; Reuters messaging: nivedita.bh.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.