October 18, 2017

Breakingviews: Nordstrom Sale Season May Be Long Time Coming

by Breakingviews.

Retailers hoping to put themselves up for sale are in for a long winter. Take Nordstrom. With large insider stakes and growing revenue, the $6.7 billion department-store chain was a prime candidate for a buyout. Now it is shelving its sale until after the holidays. It may be hoping for a higher price. But the delay suggests even risk-tolerant buyers are cool on the sector.

Nordstrom’s family insiders – with roughly 30 percent of the company’s outstanding stock – said they were looking to take it private back in June. That didn’t seem far-fetched. Unlike Macy’s, whose revenue has declined more than 8 percent in two years, Nordstrom’s top line is growing. Beefing up an online presence takes time and cash, and weathering the overall retail downturn would have been easier without the obligation of quarterly earnings.

The company’s books looked like they could withstand leverage too. If the family had rolled over its stake, they’d need roughly $1.6 billion of equity for a deal, Breakingviews calculates, assuming debt would be kept at a relatively modest four times 2018 EBITDA, or roughly $6.5 billion in total. Staples, which announced a buyout by private-equity firm Sycamore in June, was a much riskier proposition. The company’s revenue has fallen more than 7 percent over its last two fiscal years, and according to Eikon, analysts are expecting revenue to fall for the next three years.

That the Nordstroms weren’t able to team up with a partner – at least until after the holiday season – is troubling. And even if an impressive holiday season awaits, it may be hard to get other parties comfortable with the chain’s prospects. It didn’t help that Toys R Us, taken into private-equity ownership 12 years ago, filed for bankruptcy while the family was deliberating. On Monday, Target said that it was tendering for $2.2 billion of debt – a move that shows retailers are being more prudent with the balance sheets. Still, when even a retailer with revenue growth can’t get a bid off the ground, it augurs a chill winter ahead for the sector.


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