The Motley Fool Previous Page

Acquisitions Driven by a Weak Market

Andrew Marder
September 10, 2013

In 2005, TPG and Waburg Partners picked up retailer Neiman Marcus for $5.1 billion. Yesterday, they sold the business to Ares Management and the Canada Pension Plan Investment Board for $6 billion. The purchase is the second big-name department store to be picked up by Canada in 2013. Earlier in the year, Saks (NYSE: SKS) was acquired by the Hudson's Bay Company. The buyout also adds to the midyear run of acquisitions that the retail space has seen. Saks, Neiman Marcus, True Religion, and Billabong have all already exchanged hands or moved onto the sale table.

The more you buy, the more you save
All of this selling highlights a few key undercurrents in the retail space. First, weaker retailers are having a tough time, while high-end retailers are having a better run. The companies that have moved this year can be split into two groups: winners and losers. As it turns out, the winners are the companies that have been focusing on the quality at the high end, while the losers have been chasing trends.

Saks and Neiman Marcus both had solid comparable-store sales growth in their last quarters. Saks was up 4% compared to the previous year, while Neiman Marcus rose 3.6%. Past that point, things diverge for the chains, and the reasons for their sales become clear, but we'll get to that in a second. On the lower end, True Religion saw comparable-sales growth of only 0.7% in its last reported quarter, and Billabong -- which relies less on its own stores -- was forced to write its brand value down to $0.

The reason for the division between the two groups is the second issue driving this year's acquisition push -- the middle class is feeling the squeeze. A combination of unemployment, payroll growth, and taxes is giving consumers pause. Th