Buyout deals don’t always go according to plan and the most recent reminder of this came on Tuesday afternoon, as Express Inc. announced it has withdrawn from its buyout talks with the private equity firm Sycamore Partners. The company announced the firm couldn’t provide acceptable guarantees of financing.
Express finds itself in hot water
Express Inc., which is a fashion retailer, found its share price drop dramatically as the news came out. According to the Wall Street Journal, the share price plummeted around 15% in the early hours of trading, meaning the company lost almost a third of its value over the past 12 months. The Street currently rates the shares as Hold, with rating score of C.
The company went public in 2010, operating over 600 stores, and it saw its outlook improved during a good Christmas sale period. Express’ better than expected performance during the holiday period is partly due to the global drop in gas and oil prices, as well as the recent economic growth spur in the US.
The company has strong ties with private equity. The private equity firm Golden Gate Capital took the company private, before listing it on the market again in 2010.
The company had been in talks with the private equity firm for a while now. In June, Sycamore Partners announced it has gained a 9.9% stake in the company and reportedly highlighted its interest in conducting due diligence. This signalled analysts to conclude the firm is interest in a buyout.
Sycamore has been interested in the fashion retail sector before and its portfolio includes fashion labels such as Talbots and Hot Topics. It has seen its buyout talks fall in the past as well. In 2013, the private equity firm was in talks with Billabong International Ltd, but the discussion broke before the deal was made.
No Further Details
Both parties have stayed quiet over the breakdown of the deal. Fox Business reported the parties have agreed certain restrictions, which mean they can’t disclose any more potential information until June 15. It is thought this agreement may also mean Sycamore Partners cannot enter into an arrangement with other third parties for acquiring purposes.
More Blows for the Struggling Sector
The retail industry is currently struggling, as high street shopping is on the decline. Brands, such as Express, which focus on younger audience, have been hit hard, as young shoppers prefer doing their clothes shopping online. Bloomberg pointed out the company has seen its sales and earnings decrease for four straight quarters, and Express is one of the industry’s ‘better performers’.
The deal breaking down is also a hit to the private equity firm that has been looking for a retailer to buy for months. The company would have been a big target for Sycamore Partners. It remains to be seen whether the private equity firm will continue looking for another retailer in the industry or seek sufficient financing to restart negotiations.