Sycamore Buyout of Express Looks Likely


A buy-out of the troubled retailer Express Inc. by Sycamore Partners looks likely, analysts believe, after the private equity firm acquired a 10% stake and said it wants to craft a formal proposal to acquire the rest of the company.

In a letter to the company’s board, Sycamore said it intends to perform due diligence on the company to determine a price for the retailer, which could lead to a buy-out.

The investment firm said it paid $106.2 million for its stake.

Express acknowledged receipt of the letter and said it had established a special committee to determine a course of action it believes is in the best interest of all its stockholders. This has included adopting a stockholder rights plan with a 10% trigger in order to provide the board with time to determine a course of action that is in the best interests of its shareholders.

In response to the news, Express shares were up around 20% in pre-market trading.

Stifel analyst Richard Jaffe believes a going private deal is likely. “The Sycamore buyout of Express has a better than 50% chance of being completed; however, we believe the transaction will be prolonged,” he says.

“With shares trading at $16.80 pre-market, we think the company is more than fully valued on a fundamental basis.”

If the buyout is completed, Jaffe believes shares could price between $20.50 and $24.50.

“If we assume the same transaction value as the J Crew transaction in November 2010, 8.4x TTM EBITDA of $242.4 million, this would imply a share price of about $24.50 for Express, implying a 45% premium to the pre-market share price of $16.80.

“However, at the time of the J. Crew deal, we viewed J. Crew’s performance outlook more favorably than Express’ outlook today. Given this, we believe there is a possibility that the buyout could get done at a slightly lower multiple closer to 7x TTM EBITDA, implying a share price of approximately $20.50.”

Express is a former division of Limited Brands. The company, however, has suffered from declining profits over the past two years with earnings for its most recent fiscal year ending February 1 falling 16% to $116.5 million.

Last month, Express outlined a cost-reduction plan designed to save $18 million per year and close 50 stores, after reporting an 84.3% drop in first-quarter profit.

Sycamore’s investment portfolio includes Aeropostale, MGF Sourcing, Nine West Holdings, Talbots, Hot Topic, Jones New York and Kurt Geiger.

The private equity firm most recently said it would relaunch troubled women’s wear retailer Coldwater Creek as an independent company after acquiring the brand and other intellectual property.

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