Retail's back to the future
When it comes to retail and private equity, what's old is new again.
Driving the news: Insight Partners this morning announced that it will invest $500 million in the e-commerce business of Saks Fifth Avenue, which will become a standalone company valued at $2 billion. Saks owner Hudson's Bay will retain a majority stake, while Saks president and CEO Marc Metrick will move over to run the new company.
- Just days earlier, Apollo Global Management agreed to take Michaels Stores private.
Flashback: The idea of hiving off a physical retailer's online biz is familiar to anyone around in the waning days of the last millennium.
- Take-private buyouts of big box retailers is familiar to anyone around in the "Golden Age" of private equity that drove headfirst into the financial crisis.
Yes, but: This time it's different. Insight's Deven Parekh argues that 1990's splits "were really financial engineering deals" in which the parent companies treated their nascent online businesses as second-class citizens.
- In terms of Saks.com, the new company will control its own merchandising. It also will get to benefit from the brand halo, without also needing to account for legacy leases.
- In short, it's a primacy reversal.
Michaels and Apollo both have direct experience with this sort of transaction.
- For Michaels, that was being bought by Blackstone and Bain Capital in 2006 and then going public in 2014. Both the IPO and the Apollo deal value Michaels below the 2006 buyout price.
- For Apollo, it was the 2006 buyout of Linens 'n Things (RIP).
- It’s unclear why either expects better results this time around, save for improved e-commerce strategies, particularly given that the crafting market might have just experienced lockdown-fueled highs.
The bottom line: There are history books for Insight and Apollo to read, really serving as cautionary tales. In the very early going, it feels like Insight has taken its more to heart.