Neiman Marcus: $5.1 billion baby

Dallas-based cataloger/retailer The Neiman Marcus Group on May 2 agreed to be acquired by Texas Pacific Group and Warburg Pincus for $100 a share in cash, or $5.1 billion. Texas Pacific and Warburg Pincus will own equal stakes in the company upon the transaction’s close, which is expected to be by Nov. 1.

Neiman Marcus, which on March 16 had announced that it retained Goldman Sachs to explore strategic alternatives, operates the Neiman Marcus and Bergdorf Goodman upscale department stores. The company’s direct marketing segment includes the print catalog and online operations of Neiman Marcus and equally upscale gifts and home decor title Horchow, along with the Bergdorf Goodman Website.

It’s expected that the new owners will keep existing Neiman Marcus management intact and run the business as a stand-alone entity, says Owen Blicksilver, spokesperson for Texas Pacific, which is based in Fort Worth, TX, and San Francisco. Neiman’s status as a leading luxury merchant and its tremendous following were attractive to the equity investors, he says, and Neiman’s “demographics support future sales growth.”

Neiman Marcus, whose fiscal year ends July 31, reported total company revenue of nearly $3.55 billion for fiscal 2004, up almost 15% from $3.10 billion the previous year. Neiman Marcus Direct sales totaled $571 million, up 16% from $493 million for fiscal 2003. The company also has majority stakes in accessories brand Kate Spade and Gurwitch Products, which manufactures Laura Mercier cosmetics.

Craig Battle, managing director of Princeton, NJ-based investment bank Tucker Alexander, says the transaction “speaks to the consolidation of the major retailers. The private equity guys love Neiman Marcus because it’s a high-end brand with cache.” The deal itself “is more evidence that investing is back in the retail and direct-to-consumer marketplace,” he adds.

“It’s no surprise that the private equity players are going after the larger public companies,” says Mal Appelbaum, president of New York-based financial consultancy Appletree Advisors. “In the move to raise larger and larger investment funds, the private equity players have to do larger deals. It’s a continuation of an overall market trend.”

Appelbaum also expects to see more of these “club deals” in which two or more private equity players team up to acquire a business. Another recent example: last month’s acquisition of Nashua, NH-based cataloger/retailer Brookstone by a trio of private equity firms.

Texas Pacific Group manages more than $15 billion in assets across a range of industries. In addition to New York-based apparel cataloger/retailer J. Crew, its investments include Petco, Debenhams, Burger King, Ducati, and Continental Airlines.

Warburg Pincus has approximately $13 billion under management; the investment firm has holdings in such industries as information and communication technologies, financial services, healthcare, media and business services, energy, and real estate.

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