With plenty of cash to invest and few "good," sexy tech and telecom firms to buy, several private equity investment firms specializing in leveraged buyouts are starting to take a closer look at the sometimes stodgy world of fashion and retail.
Of course, there’s really nothing stodgy about fashion and retail, which frequently conjure up images of glamour and celebrity. However, the so-called old economy business model utilized by firms in the sector used to pale in comparison with the once-touted new economy models of the dot-coms.
Not anymore. Gone with the dot-bombs is the idea of unproven business concepts generating quickie sales and profits. Back in vogue for the first time since the early Nineties are old-fashioned business models with proven track records, consistent earnings and products that can be touched and felt.
Of course, given the ongoing war in Iraq, many firms are likely to stay on the sidelines until there is some certainty over its duration and outcome.
According to Andrew Jassin, co-founder of consulting firm The Jassin-O’Rourke Group, there are many fashion-related firms looking for financing to grow. In addition, there are owners who are looking to cash out on all or part of their ownership interests. While not all negotiations will result in agreements, Jassin said that he’s getting approached more and more frequently by private equity firms for ideas on possible deals.
That’s also good news for retail and apparel companies looking for dollars with which to grow their businesses.
Gilbert Harrison, chairman of investment bank Financo Inc., observed, "There is a tremendous amount of money committed to buyout firms by large institutions, pension funds and corporations. Most of that money has not been put to work. The nature and quality of some of the [proposed] deals, and also pricing, have been such that prudent managers don’t want to proceed because the deals are perceived as not good enough for investment."
According to research by Morgan Stanley, buyout firms have more than $100 billion in cash on hand for investments. Blackstone Group, for example, in 2002 raised $6.5 billion for its buyout fund. There’s still excess cash out there flowing into the funds. In January, Boca Raton’s Sun Capital Partners, which specializes in turnarounds and special situations, raised $500 million — $100 million more than originally planned — for its LBO fund, Sun Capital Partners III.