Talbots, the struggling women’s retailer with a stuffy image, has fallen out of favor with shoppers. But it looks attractive to private equity.
Sycamore Partners, a private equity firm, disclosed Monday that it held a 9.9 percent stake in Talbots. In a securities filing, Sycamore said it believed Talbots stock was undervalued and expected to discuss with management the company’s strategy and operations.
Shares of Talbots got pummeled in June, dropping nearly 40 percent after the chain, which is bases in Hingham, Mass., announced poor sales figures and plans to close about one-fifth of its roughly 550 stores. Known for its conservative tweeds and twin sets, Talbots has lost appeal with more fashion-forward shoppers.
Investors snapped up Talbots stock on Monday. In midday trading, shares rose about 50 cents, or 15 percent, to $4 on heavy volume.
Sycamore’s stake in Talbots could result in the firm’s eventual acquisition of the company, say several private equity deal makers. Its investment mirrors that of a recent play for BJ’s Wholesale Club. In the case of BJ’s, the private equity firm Leonard Green Partners first took a 9.3 percent stake in the company last year before acquiring it with CVC Capital Partners in June for $2.8 billion.
Another retailer, Family Dollar, has also seen private investors buy up its shares in the hopes of an eventual buyout. In February, Family Dollar rejected a takeover offer from Trian, the fund run by the financier Nelson Peltz, after it took a large stake in the company. William A. Ackman’s Pershing Square has also acquired a stake of just under 10 percent.
Sycamore, a new firm focused on retail and consumer companies, is looking to get in on the game. Based in New York, Sycamore was started this year by Stefan Kaluzny, a former partner at the private equity firm Golden Gate Capital. Mr. Kaluzny worked on a number of prominent retail deals at Golden Gate, including the firm’s acquisition last year of the jewelry chain Zales.
Can Sycamore come up with the cash to take Talbots private? The firm’s 9.9 percent stake cost it about $22 million. A buyout of Talbot’s, which has a market value of about $265 million, would require considerably more cash than that. A recent article in Buyouts magazine said that Sycamore recently did a first close at $300 million and was targeting a $750 million and $1 billion fund.
A Sycamore spokesman declined to comment.
Given the company’s depressed value and the fact that Sycamore has effectively put Talbots in play, a number of other private equity firms could be logical buyers of the company. Sun Capital Partners, for example, is known for buying distressed retailers and owns Limited Stores. Advent International bought Charlotte Russe.
Mr. Kaluzny appears to have sizable ambitions, if for no other reason than because of Sycamore’s location. According to Monday’s securities filing, the firm is located at 9 West 57th Street, one of Manhattan’s most prestigious and expensive business addresses. The firm’s neighbors in the building include a number of the world’s largest private equity firms, including Kohlberg Kravis Roberts Company, Apollo Global Management and Silver Lake Partners.
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