Is Dick’s Sporting Goods the Perfect Target for Private Equity?


January 12, 2015

Reports at the end of the week showed that the American sports good retailer is holding talks with a number of private equity firms. Many analysts are now viewing the company as the perfect target for private equity and feel the deal could be one of the most anticipated deals of the start of the year.


Reuters published the early reports, stating the company is exploring buyout options in order to go private. Although there has been no official statement from either Dick’s Sporting Goods or the private equity firms involved, it is clear that there’s quite a lot of interest around for the company.


Strong Performance
Experts believe the company is particularly attractive for private equity due to its market cap. According to Investing, the company currently has $6.4 billion market cap, as well as low levels of debt. The company hasn’t been able to perform that well in the stock market, which has been party the reason the management team has started looking into the option of going private.


According to Business Insider, the last 12 months have seen the Dick’s Sporting Goods stock decline nearly 15%, despite the Standard & Poor’s 500 Sector Discretionary index growing by 6% over the same period.


Nonetheless, the reports last week have been able to push the company’s stock performance. Bidness ETC highlighted on Sunday evening that the common stock for Dick’s Sporting Goods went up to $55.88 on Thursday, which resulted in “boosting its market capitalization to nearly $6.7 billion that day”.


Renewed Enthusiasm for Brick-and-Mortar Retail Chains
Private equity trends moved away from the typical brick-and-mortar retail chains in the past few years, but it looks like the deal could be one among many recent revival deals. The toughened regulatory market for private equity deals and especially more stringent lending guidelines for leveraged buyouts have resulted in lower availability of debt and drawn interest towards these typical deals.


The $8.7 billion deal over PetSmart by the private equity firm BC Partners renewed the industry’s appetite for deals such as Dick’s Sporting Goods. Reuters stated that many industry experts believe private equity might move into companies such as the consumer electronics chain Best Buy and home goods retailer Pier 1 Imports next.


Problems in the Horizon?
But not all the analysts have viewed the potential deal as a good deal. Investing quoted analyst Christopher Svezia from Susquehanna, noting that although there are positive signs and ‘healthy earnings’ in the horizon, they aren’t good enough to meet a high enough earning’s threshold.


Furthermore, industry experts point out the potential private equity buyer needs to keep in mind the tough times ahead for the retail industry in general. The rise of e-commerce with its intensified competition is challenging these typical brick-and-mortar retailers. The good news for firms interested in Dick’s Sporting Goods is the company’s niche market position for things like Callaway golf clubs.


The deal could still be one of the most exciting deals of the start of the New Year and could signal that old-fashioned leveraged buyout deals aren’t done yet.


You can continue finding information on the recent private equity deals at DealMarket.

Share on FacebookTweet about this on TwitterShare on Google+Share on LinkedIn