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A cut to interest rates will do little to change the pace of bankruptcies, but opportunities abound for buyers looking to scoop up cheaper assets.

Why it matters: Well-capitalized buyers will be able to pick up the bankrupt holdings and usher in a flood of deals.

By the numbers: There have been 60 bankruptcies in the consumer discretionary sector so far this year, compared with 48 at the same time last year, according to S&P Global Market Intelligence.

Driving the news: Discount retail chain Big Lots entered Chapter 11 bankruptcy last week, with a stalking horse agreement to boot.

Its bidder, Nexus Capital Management, is offering to buy Big Lots' assets and operations for $620 million (though some lenders are questioning how the PE firm would finance it).

Eastern Mountain Sports' stalking horse bidder is U.K.-based outdoor and sports gear retailer Mountain Warehouse, which has offered to buy its IP for $5 million.

Vintage Wine Estates has received several stalking horse offers in its bankruptcy auction.

Zoom in: Home goods retailers and discount chains have been especially hard-hit, as they contend with budget-conscious consumers and online competition, which is further putting pressure on prices.

Zoom out: In addition to online pressures, price competition and the rise of personalization via AI will make buying experiences online more attractive, further challenging brick-and-mortar retailers.

What we're watching: As inflation appears to cool, the Federal Reserve is positioned to cut interest rates as soon as this week.

"The question would be, how deep of a cut? Is this going to be the only cut for a while? Is there going to be a series of cuts?" asks Jeffrey Fine of Dykema's business bankruptcy and restructuring practice.

What they're saying: Even with rate cuts coming, "there still is a much larger interest rate to deal with now than there was years ago," Fine says.

The 2024 presidential candidates disparate positions on the economy, financial regulation, and their plans to address inflation during their term leave retailers' futures on shaky ground, he adds.

General uncertainty is causing lenders to take pause, or even purposely hold back on financings, because they can only make "an educated guess as to where things might go," Fine says.

The bottom line: A company that financed at a very low interest rate whose credit is coming due will be refinancing in an environment with a substantially larger interest rate and carrying costs.

Data: Axios research; Chart: Axios Visuals

Retail bankruptcies create M&A ideas

Illustration of a rolling steel door partially covering a hundred dollar bill.   

Bausch + Lomb is working with Goldman Sachs to explore a sale that will separate it from debt-laden parent Bausch Health, the FT reports.

Why it's the BFD: Sources close to Apollo and the creditor group tell Axios that Bausch Health's lenders are not opposed to a sale, though were opposed to a spinoff.

Catch up quick: Bausch Health, formerly Valeant, announced in 2020 that it would spin off the eye health unit as a separate publicly traded company.

Its lenders, including Apollo Global Management, Elliott Management and GoldenTree Asset Management, were opposed.

Zoom in: Bausch + Lomb's enterprise value was about $10 billion as of Friday, and private equity is seen as the most likely buyer.

Its majority shareholder Bausch Health has approximately $21 billion in debt, $10 billion of which comes due by the end of 2027, per the report.

Bausch + Lomb declined to comment, while Bausch Health and Goldman Sachs did not respond.

Bausch + Lomb explores sale, FT reports

Illustration of an eye chart with dollar signs instead of letters.

📦 Shein and Temu's prices could be set to increase if the Biden administration successfully manages to close the so-called de minimis loophole, CNBC reports.

The loophole allows packages valued at under $800 to circumvent duties at the border.

The companies have maintained that they're able to maintain their near rock-bottom prices thanks to their innovative business models, not because of the de minimis exemption.

The Biden administration announced on Friday that it planned to strip overseas shipments subject to the U.S.-China tariffs from being eligible for the exemption.

👗 Violet Grey founder Cassandra Grey has brought her fashion e-commerce company back into her hands.

Grey, with 888Midas' Sherif Guirgis, acquired the company back from Farfetch, which acquired it for about $50 million in cash and stock in January 2022.

Guirgis will become CEO of Violet Grey while Grey will become an executive board member.

🏪 7-Eleven parent Seven & i has been designated as "core" to national security designation by the Japanese government, possibly a defensive maneuver against Canada's Alimentation Couche-Tard takeover plan.

💍 Kendra Scott, an Austin-based jewelry brand, sold a significant stake to 65 Equity Partners, the company announced last week.

CEO Tom Nolan told Axios in March that the company was seeking capital to fund its expansion plans, but didn't specify whether it would entail a sale or a transfer of shares.

HPS Investment Partners and Belzberg & Co co-invested alongside 65 Equity Partners, the company said, while founder Kendra Scott increased her majority stake.

As a result, preferred stock investments held by Berkshire Partners and Norwest Venture Partners were fully redeemed.

PE firm Berkshire Partners invested in Kendra Scott in 2016 via a deal that valued it at $1 billion at that time.

Retail therapy

Illustration of a Rorschach inkblot showing shopping carts reflected on either side.

Want more retail deals? Go deeper into our full database in the Axios Pro Deals Tracker.

• Abolis, a French maker of sustainable ingredients for beauty products, raised €35m from L'Oreal and Evonik. Go deeper

• Mangomint, an LA-based salon and spa software provider, has raised a $35m Series B led by Altos Ventures, with participation from Jason Lemkin's SaaStr Fund and OpenView Venture Partners. It also secured $12m in venture debt from Avidbank. Go deeper

• Novameat, a Spanish plant-based meat maker, raised a €17.4m Series A. Sofinnova Partners and Forbion co-led, and were joined by Unovis Asset Management, Praesidium, and Rubio Impact Ventures. Go deeper

• Impetus Wellness Group, a portfolio company of AEA Investors, has acquired Edison, N.J.-based Reliance Vitamin from Swander Pace Capital. reliancevitamin.com

• New Mountain Capital has invested in Datassential, a Chicago-based food and beverage intelligence platform. datassential.com

• Havanna, a maker of Argentinian confections called alfajores, has hired UBS to find a buyer for its Latin America business, per Bloomberg. Go deeper

• United Parcel Service (NYSE: UPS) closed its sale of Coyote Logistics to RXO (NYSE: RXO) for just over $1b. UPS paid $1.8b to buy Chicago-based Coyote in 2015 from Warburg Pincus. Go deeper

• Swiggy, an Indian food delivery company valued by VCs at $10.7b, could file for its IPO as early as this week. Go deeper

Retail transactions

• John Min was named chief legal officer and Mary Lee Greenlee was named SVP, U.S. operations at fast-food chain Wendy's Co. (Nasdaq: WEN). Go deeper

• Delphine Herve, a LVMH veteran, was promoted to CFO of Sephora's North America unit, succeeding Christophe le Boterff, who plans to retire. Go deeper

It's Personnel

🥩 What we're eating: Kim grabbed empanadas and steak at the Buenos Aires steakhouse in the East Village with her friends over the weekend.

✏️ Many thanks to newsletter editor George Moriarty and copy editor Mickey Meece for today's edits.

🙏 Thank you for reading Retail Deals. Please ask your colleagues, friends and family to sign up.

September 16, 2024

1 big thing: Retail bankruptcies create M&A ideas