Lee Equity to pay $395m for retailer(2)

Thomas H. Lee-led Lee Equity Partners has agreed to pay $395 million for teen fashion retailer Deb Shops. It is the firm’s second deal since it was founded last year.

New York-based Lee Equity Partners will acquire US retailer Deb Shops for $395 million (€290 million) in cash. Lee Equity will finance the deal through a combination of cash and new committed credit facilities, according to a statement.

Lee Equity partner Ben Hochberg praised Deb Shops’ “strong connection” with its existing customers. But the company needs to expand, Hochberg said, to capitalise on the fact that its target customers, regular and plus-sized teens looking for value-priced clothes, are a “nationwide phenomenon”.

“There are really interesting roll-out opportunities,” Hochberg said. “It’s a good concept, but they’ve only got 337 stores.”

He stressed that Lee Equity will not be trying to cut costs, but rather will focus on growth and expansion. Lee Equity wants to expand Deb Stores’ footprint and brand recognition, as well as bring its plus sized line to more locations, Hochberg said.

“They have great merchandise, but if you walk by it doesn’t really create as powerful an as impression as it could,” Hochberg said. He said Lee Equity will work to refresh the company’s image through store redesigns and revamped advertising, marketing and PR.

Lee Equity senior advisor Allen Questrom will join Deb Stores’ board as non-executive chairman upon completion of the deal. Questrom is a retail operating executive who has served at the helm of JC Penney, Barneys New York, Federated Department Stores and Neiman Marcus. Lee Equity partners Hochberg and David Morrison will also join the board.

Marvin Rounick, president and chief executive officer of Deb Shops, and Warren Weiner, Deb’s current executive vice president, plan to retire, but have agreed to provide consulting services for the firm for three years after the deal closes.

Lehman Brothers was financial advisor to Deb Stores, and Morgan, Lewis & Bockius was legal advisor. Bear Stearns was financial advisor to Lee Equity, and Weil Gotshal & Manges was legal advisor. Barclays Capital will provide all financing for the deal.

Thomas H. Lee founded Lee Equity in 2006 after leaving his namesake Boston-based firm Thomas H. Lee Equity Partners. The new firm makes growth oriented investments of between $100 million and $500 million, mostly in the US.

Although Lee Equity has not yet announced a fund close, the firm said last year that it had “interim financing” that enables it to begin investing at once. Its first deal took place in May, when it was part of a consortium of firms that invested $350 million in Rye Brook, New York-based Universal American Financial, a provider of managed care and health insurance.