Leonard Green: setting ground for retail M&A

Retail M&A interest resurfaced in 2010, with Leonard Green, an equity firm based in LA, as the main character so far: its buyout offers for J.Crew and Jo-Ann Stores started to draft the coming operations within the sector. It appears to be that the

private-equity buyouts of J.Crew, Gymboree and, most recently, Jo-Ann Stores, have triggered bullish sentiment in the sector, opening doors to news M&As in 2011. Last year, Leonard Green agreed to participate in a $3 billion take-private of clothing retailer J. Crew Group Inc. as well as a take-private deal for fabric and craft retailer Jo-Ann Stores Inc. The Los Angeles firm targets deal sizes ranging between $500 million and $2 billion, in sectors such as consumer and business services, consumer products, distribution, health care, media and retail.

Jo-Ann Stores announced at the end of December that it was being acquired by private-equity firm Leonard Green in a deal valued at $1.6 billion, or $61 a share. This represents a 34% premium over its closing price on Dec. 22. This was the second retail acquisition by Leonard Green over the past three months, having teamed up with TPG in November to acquire J.Crew. The private-equity consortium purchased the specialty apparel retailer for $2.86 billion, or $43.50 a share. As part of the deal, Millard Drexler will continue as chairman and chief executive officer and maintain a significant equity investment in J Crew.

Sharply three months afterwards, J. Crew Group Inc. shareholders voted in favor of TPG Capital and Leonard Green & Partners LP’s takeover, capping Chief Executive Officer Millard Drexler’s months-long effort to take the apparel chain private. The company announced the results of the vote at a meeting last Tuesday March the 1st in New York. Looking back, 2010 turned out to be a pretty active year for retail M&A, with 14 UK deals worth more than £50m, of which seven were over £250m. Just a few days after its announcement regarding the buyout offer for Jo-Ann, Leonard Green & Partners showed its eagerness to acquire warehouse club operator BJ's Wholesale Club and, according to the New York Post, may attempt a hostile takeover if the company does not initiate an auction soon. In February, BJ’s Wholesale Club announced it had hired Morgan Stanley to explore a possible sale.

Family Dollar Stores appears to be the latest takeover target after announcing in February it had received a buyout offer worth almost $7.6 billion from investor Nelson Peltz's Trian Group, which had picked up a 6.6% stake in the discount chain last fall. Also Sears Holdings Corporation’s shares of Family Dollar are surging following an offer from Nelson Peltz's Trian fund of $55 to $60 a share. Family Dollar said it will review the proposal. The latest retailer to put itself on the block was teen apparel specialist Delia's (DLIA), which is reportedly doing the private-equity rounds, looking for a buyer after losing much of its cachet in recent years.