Industry News / Tough Times for Retailers, and Retail Deals

Retail apparal deals getting done are small, with price tags well below $1 billion

One  deal that may be in the works would be the sale of Quiksilver to Nike or another strategic acquirer.

Surfersvillage Global Surf News, 10 November, 2008 : - - With consumer confidence down, the United States retail sector is bracing for serious pain. Monday’s bankruptcy filing by Circuit City, the electronic chain, is expected to be a prelude to others, as retailers fall victim to the credit crunch and the economic slump.

It might seem like a good time for relatively strong retailers to shop for bargain-priced acquisitions — but the short-term outlook for retail deals looks grim. So far this year, merger activity in the United States retail sector is down about 69 percent from the year-ago period, to about $15 billion from $48.5 billion, according to Thomson Reuters.

While target companies may look cheap, there is simply very little funding available to do a deal. “There is a direct correlation between banks’ willingness to lend and retail sales growth,” said Dan Binder, an equity analyst with Jefferies. “Unfortunately for the retail space, until the debt cycles begin to reverse course, significant growth in retail sales will not be seen.”

Of course, less money to do deals means fewer deals. "Retail apparel companies are holding their breath until after the holidays before determining the next steps,” siad James Grayer, a partner with law firm Kramer Levin Naftalis and Frankel. “Retail apparel deals on my desk are moving very slowly.”

Deals that are getting done are small, with price tags well below $1 billion, and are usually financed strictly with cash. One small deal that may be in the works would be the sale of Quiksilver, a maker of surfer-style clothing, to Nike or another strategic acquirer. Quicksilver has retained Morgan Stanley to advise on its strategic alternatives. And Talbots, which sells women’s apparel, recently put its J. Jill unit up for sale.

No one knows for sure when the debt markets will open up again, but deal activity — or, at least, deal activity outside the bankruptcy courts — is likely to remain constrained until it does.

www.nytimes.com

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