Although TPG Group and Leonard Green & Partners have agreed to acquire J. Crew Group for nearly $3 billion, some believe the apparel cataloger/merchant may get a better offer. J. Crew has until Jan. 15 to solicit alternative proposals.
Is it likely to get one? Lee Helman, managing director with investment firm Financo, is confident that someone will try and outbid Leonard Green and TPG. Companies might be afraid to be the first to do so, “but the company is a jewel,” he says of J. Crew.
Then again, “there really are only a handful of logical qualified buyers interested in retail that can do a deal of this size,” says Chris Kampe, managing director at investment firm Tully & Holland. “The only other players big enough to pull off a deal that large that come to mind (other than Leonard Green) are Bain Capital Ventures, KKR, Apollo, Blackstone, and Sun Capital. If not Leonard Green, the obvious player is Bain.”
The fact that Millard Drexler will continue as chairman/CEO of J. Crew and maintain a significant equity investment in the company, is a plus, Hellman says. Drexler, who joined J. Crew in 2003, “has phenomenal confidence in his business and the plan,” he says. Drexler must want to “fly under the radar as a private company to affect some of his growth strategies.”
Antonia Ness, managing director with investment firm Gruppo, Levey & Co., isn’t surprised that a strong brand and “relatively well performing multichannel business would be the target of a take private. We’ve seen a big pick up in availability of financing for big deals and we’ve been talking for years now about the amount of sidelined money that needs to be put to work to generate returns.”
A special committee of the J. Crew board of directors negotiated the transaction and recommended it to the full board. The agreement was approved by the full board other than James Coulter, a partner of TPG Capital, and Drexler, who recused themselves from the vote.
Leonard Green and TPG are paying $43.50 per share in cash for J. Crew. If there is no superior offer by Jan. 15, the transaction is expected to close in the first half of fiscal 2011, subject to customary approvals and closing conditions.
Completion of the transaction also requires approval by a majority of the outstanding J. Crew shares. As reported earlier, some J. Crew shareholders are not pleased about the deal, and several law firms are investigating the way the board handled it.