Financial Firms in Lead as Barneys Bidding Enters 2nd Round

Major retailers have dropped out of the bidding for Barneys New York, according to financial sources. Now the focus is on investment firms.

The Barneys New York flagship on Madison Avenue

The Barneys New York flagship on Madison Avenue.

Photo By WWD Staff

NEW YORK — The bidding for Barneys New York is into its second round — with some notable absences. Neiman Marcus Group, Dickson Concepts and Federated Department Stores are no longer in the running.

Financial sources familiar with the process said that while the high-profile names were thought to be contenders for the luxury firm when Barneys first said it was for sale on June 30, it now appears more likely that the next owner of Barneys will be yet another financial player.

But it could be a few more weeks before a clear picture emerges of final bids for Barneys, sources said.

The high-end firm, with flagships on Madison Avenue and in Beverly Hills and Chicago and four Co-Op stores, hired Peter J. Solomon Co. and Morgan Stanley as its financial advisers to explore “strategic alternatives,” including the sale of the company. Bankers at Peter J. Solomon declined comment on Friday. Bankers at Morgan Stanley could not be reached for comment at press time.

A financial buyer for Barneys seems plausible, given market conditions in which recent deals have involved a number of investment banks and hedge funds with names such as Sun Capital Partners and Cerberus Capital Management LP, who, together, recently picked up Mervyn’s from Target Corp. for $1.2 billion in cash.

Barneys has been under majority ownership of two turnaround investors, Whippoorwill Associates Inc. and Bay Harbour Management, since 1999. The two firms bailed Barneys out from bankruptcy, and investors such as these two tend to hold on to investments for an average of five to seven years.

In the case of Barneys, which has a starting enterprise value of $400 million, financial buyers will likely try to bid down the price compared with a retailer, which would be willing to pay more to gain control of the asset for strategic reasons, said seasoned investment bankers. More important, in terms of Barneys’ future, a financial buyer would operate similarly to Whippoorwill and Bay Harbour by having an exit strategy in place. It also would be likely to maintain Barneys’ current management.

While the idea of another sale down the road might seem distracting for Barneys’ management, it may make good business sense.
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