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M&A Deals to Keep Up Breakneck Pace

Don't expect a slowdown in M&A activity anytime soon, particularly after Foot Locker's $1.2 billion tender offer Friday for all the outstanding shares of...

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A style from Nanette Lepore.

Photo By John Aquino

Don't expect a slowdown in M&A activity anytime soon, particularly after Foot Locker's $1.2 billion tender offer Friday for all the outstanding shares of Genesco Inc.

On deck are the possible sales of Barneys, Gottschalks, Betsey Johnson, Nanette Lepore and Joseph Abboud, said financial sources.

For now, though, players in the M&A market were digesting Foot Locker's bid for Genesco. As first reported in WWD last month, Foot Locker's $46-per-share bid Friday was in the works for some time. The retailer disclosed an April 6 letter to Genesco's management that stated the dance between the two was ongoing for several months. A follow-up letter was sent Thursday stating the retailer's intent to go public about the bid on Friday. Those months certainly gave Genesco, which it is believed does not want to be owned by Foot Locker, time to find a so-called white knight. Sources said Genesco had been meeting with private equity firms. Speculation on Wall Street is that Foot Locker's next step is a proxy fight to unseat Genesco's current board.

One investment banker expects the M&A market to maintain a heady pace. "I think for the next six months there'll be a lot of activity. It's not like all the money is spent. There are estimates of up to half a trillion, or at least a couple of hundred billion, that's still available for investment," said Frederick Schmitt, an investment banker at the Sage Group, a firm that advises apparel companies and catalogue-retail operators that are looking for a buyer.

The banker said some investors were paying closer attention to the credit markets to see if the banks were still willing to finance deals. They were also assessing the overall health of the economy, including consumer spending. Even if the economy slows somewhat, Schmitt doesn't expect M&A activity to stop.

"The strategics don't need debt financing, but the financial groups do. If banks are less willing to finance deals [meaning they will still lend, but lower amounts], the financial buyer will have to decide whether the deal is worth putting more equity into the transaction," Schmitt said.

He said he thought there was still sufficient interest in retail, as evidenced by the recent acquisition of Claire's Stores Inc. by Apollo Management for $3.1 billion. As for apparel brands, the banker expects more deals in that sector, too.

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