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Public to Private Window Closing?
As public companies seek out alternatives, it's becoming less likely that a taking-private deal will emerge as an option.
February 21, 2008
Last year, a string of high-profile businesses announced they were seeking “strategic alternatives,” and the assumption was yet more public companies would be shuttled either into private hands via a PE-backed public to private deal, or into the waiting arms of a strategic acquirer. However, a number of companies, particularly those with exposure to a fatigued consumer base, have concluded their strategic reviews absent a deal or have extended their search for alternatives amid what would seem to be lackluster reception from the deal community.
Shoemaker Steven Madden, for instance, announced in October that the company was seeking strategic alternatives. On Tuesday, the company unveiled a stock repurchase arrangement through a modified "Dutch Auction." For those hoping for a sale of the business, the announcement might have been anticlimactic.
But the news underscores the primary hurdle facing buyers today, particularly private equity firms, namely that the credit crisis is impacting dealmaking. Ed Rosenfeld, executive vice president of Steven Madden, conceded that for many companies, public-to-private deals are getting harder to consummate. “Banks aren’t lending money,” he said succinctly.
An analyst told MergersUnleashed he believes that most inquiries into the company were likely from private equity buyers, who may have submitted offers. However, the offers probably didn’t approach anywhere near the rich valuations being seen before last summer. “I think they made the right decision,” the analyst said, referring to Steven Madden’s decision to forego a sale.
In a similar vein, Build-A-Bear Workshop, Inc. announced in June 2007 that Lehman Brothers would assist the company in considering strategic alternatives. Last week, in the company’s fourth-quarter review, the company’s chairman and chief executive Maxine Clark stated, “While we hoped to have concluded this process by now, its timing has been complicated by a significant tightening of the financing markets and the general weakness in the retail environment.”
Analysts are now bearish on the company — no pun intended. David Schick, an analyst at Stifel Nicolaus & Company said, “The long-term best interests of the company may be best served by being outside of the public arena.”
The problem, however, is that it would seem that buyers remain cautious.
Paul Weisbrich, senior managing director of mid-market investment bank RSM EquiCo, noted that a number of strategic reviews, launched with the intention of finding a deal, could follow a similar pattern as Steven Madden.
Indeed, Tandy Brands Accessories recently completed its own review, reaching the uneventful conclusion to merely "focus on improving our core business," chief executive T.S.B. Jenkins said in the company's quarterly statement.
Weisbrich notes that it’s not just price impacting deal flow, but also the certainty to close, as sellers have become circumspect about private equity following the rash of broken deals seen in the large market.
“If you were going to sell a company you would have to think long and hard to do a private equity deal,” he said, adding that strategic bidders now hold the upper hand.
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