Private Equity News & Analysis

Gap stock surges amid buyout rumours(2)

The struggling US retailer see shares rise by 7% after reports that it is considering a sale.

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Shares in US clothing chain Gap surged more than seven percent after news emerged that it may become the next big US retailer to be targeted by private equity firms.

Gap shares closed at $20.26 (€15.55), up 7.3 percent, after US television station CNBC reported that Goldman Sachs had been mandated to investigate strategic options for the company. Private equity firms are seen as the most likely bidders for the chain, following a string of recent deals in the US retail sector.

The struggling retailer, which has seen profits fall for five consecutive quarters, recently reported disappointing results for the holiday period.  Sales for December fell eight percent compared to the same period the previous year, three percent more than analysts’ predictions. The company’s current market capitalisation of $16.42 billion (€12.60 billion), based on yesterday’s closing share price, is less than half that in 2000, when the share price topped $50.

The deal would be the latest in a string of big private equity deals in the US retail sector. US buyout firm Bain Capital teamed up with the Blackstone Group to pay $6 billion for arts and crafts retailer Michaels Stores last August, having previously joined forces with Kohlberg Kravis Roberts to buy toy retailer Toys R Us for $6.6 billion in 2005. Last year Apollo Management also extended its US retail portfolio, completing deals for Lord & Taylor, a department store chain, and Linen’s ‘N Things, a household goods retailer.

Distressed debt specialist Cerberus Capital Management also has a number of US retail interests, including discount chain Mervyn’s and supermarket chain Albertson’s.

Goldman was also involved in the flotation last June of rival clothing store J.Crew, which had been previously acquired by buyout firm Texas Pacific Group. TPG, which retains a 40 percent stake in J.Crew, has seen the value of its shares double since the flotation.

Other reported private equity targets in the US include shoe retailer Foot Locker, and department store chain JC Penney.

 

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