Sycamore nears Billabong deal

The PE-led consortium that includes Billabong board director Paul Naude expects to reach a deal in the coming weeks, which would conclude months of takeover talks for the Australian retailer.

A private equity consortium comprising of Sycamore Partners, Bank of America Merrill Lynch and Billabong board director Paul Naude has asked for a 10 business day extension on its period of exclusivity that originally began on 9 April, according to a company statement. 

The Sycamore consortium outbid rivals with an offer of A$287 million for 100 percent of the business, equal to A$0.60 per share. This was a reduced offer from its original bid of A$1.10 earlier this year. 

Billabong said in a statement, “Billabong and the Sycamore consortium agree that both have been working constructively and with the utmost cooperation to progress the quality of earnings report and the potential transaction. Accordingly that extension has been granted and the period of exclusivity will now conclude on Wednesday 8 May 2013.”

Launa Inman, chief executive of 

Billabong, 

and the company board try to reach a deal

While the Australian surf-wear business stresses neither party is contractually obliged to complete the transaction, Billabong will likely be hoping to close the deal, having been in take-over talks with various private equity firms for months. 

“The Sycamore consortium requires funding to pay for this potential acquisition. As part of that process they have to get an independent assessment of the future earnings potential of Billabong so they’re waiting on an independent report and it is just taking longer than they expected. The board of Billabong wants to get a deal done, Sycamore wants to get a deal done, but that is why there has been an extension,” Tim Montague-Jones, senior equity analyst at Morningstar, commented to Private Equity International

The extension therefore is not necessarily a reflection that the deal won’t get pushed through, he said. However Sycamore wouldn’t be the first firm to walk away from the business. In October last year, TPG Capital withdrew its offer to acquire 100 percent of the business. In July, TPG had bid about A$695 million (€591 million; $728 million) in equity or A$1.45 per share for Billabong, representing a multiple of 6.6x EBITDA, PEI reported earlier. Bain Capital also entered the bidding process last September, but walked away from the deal weeks later, according to industry sources.

They've had six profit warnings, six downgrades – they're struggling. You have to question whether there is an appetite on the revenue line for their products and at the moment, there doesn't seem to be

Tim Montague-Jones, senior equity analyst, Morningstar

“On public information [TPG] saw value [in the business], but when they actually delved down and looked at the divisional stuff behind the scenes, they decided its actually not worth anything otherwise they would have [lowered] their bid. Also Bain came in and looked through the books and after two weeks they walked away,” Montague-Jones added. 

Morningstar itself has advised investors to stay away from the business, even in spite of its lowered valuation. “We’ve had an avoid on it – they’ve had six profit warnings, six downgrades – they’re struggling. You have to question whether there is an appetite on the revenue line for their products and at the moment, there doesn’t seem to be.”