Private Equity Firms Agree to Buy J. Crew

Nov 24, 2010
George Anderson

By George Anderson

J. Crew has succeeded in recent years with a brand quality
approach even as many others have gone the price first and last route. The
First Lady, Michelle Obama, wears the company’s clothes and investors have
liked (for the most part) the chain’s business and stock performance.

As it
turns out, private equity firms TPG Capital and Leonard Green & Partners
are also admirers of the way Mickey Drexler and company have gone about their
business. The two investment firms have agreed to acquire J. Crew in a deal worth
roughly $3 billion or $43.50 a share in cash to make the deal. TPG will take
a 75 percent stake in the merchant and Leonard Green will acquire the rest.

price being paid for J. Crew represents a premium of 29 percent to the company’s
average closing price over the past month. The deal, however, was well below
J. Crew’s 52-week high.

Mr. Drexler, chairman and CEO of J. Crew, said in a press
release, "I have
always said, we are in this for the long term and we do what we do day in and
day out so we can deliver the best possible products to our customers. TPG Capital,
with whom we have a long working relationship (13 years), along with Leonard
Green & Partners, are both well respected private investment firms whose
substantial resources and experience will enable us to invest in our future growth."

Sozzi, an analyst with Wall Street Securities, wrote in a client note that
TPG Capital and Leonard Green were "getting a strong management team led
by Mickey Drexler, a productive mall-based store portfolio, and a growing outlet

Discussion Questions: Were you surprised by J. Crew’s decision to sell? What
do you expect to happen now that it is owned by TPG Capital and Leonard Green & Partners?

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5 Comments on "Private Equity Firms Agree to Buy J. Crew"

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Dan Berthiaume
Dan Berthiaume
10 years 5 months ago

In this day and age of constant mergers and acquisitions, nothing short of a Walmart sale would really surprise me in the retail realm. J. Crew has done an impressive job of maintaining its brand image and pricing in the face of many other premier apparel brands making lines available in discount chains.

It is all the rage these days to use the Grateful Dead as a marketing example, and J. Crew did follow one strategy of The Dead – develop a consistent fan base and keep offering them the same product regardless of the shifting tastes of popular culture.

Bill Emerson
Bill Emerson
10 years 5 months ago

In the short term, this is a very good deal for the J. Crew management team as their equity becomes cash at a big premium. It also frees them from any pressure to meet the street’s expectations of quarterly sales and earnings and the potential bad decisions that can follow from trying to meet these expectations.

Over the long term, it remains to be seen. Private equity groups, in general, operate on a fairly simple set of goals – 2-3X return on their investment in 2-3 years. Typically this is a liquidity event like bringing the company public again at a much higher price in a few years. Meeting this goal is a whole different level of pressure and can be positive or negative depending on the investors.

These kind of deals have become exceedingly rare in the retail world. This is yet another testament to the brilliance of Mickey Drexler. He is, in my view at least, the last of the truly great merchants.

jyoti mujumdar
jyoti mujumdar
10 years 5 months ago

I think this is a great decision by J. Crew. The influx of capital will help grow the untapped brand. Even sheer distribution gains via new store openings and product line extensions will drive its growth. With the investor group keeping a close eye on the bottom line, Crew will be able to do so profitably and cash in on its brand equity, which has grown tremendously since Michelle Obama’s unofficial endorsement.

Mark Johnson
Mark Johnson
10 years 5 months ago

It will be very interesting in this day of no liquidity at the banking level, what they will do with the Crew?

Very loyal and less price sensitive audience, with an enhanced loyalty initiative the brand would prosper.

Phil Rubin
10 years 5 months ago

Drexler has long been a customer-obsessed CEO, as we’ve written about many times. Like Bezos and others, his idea of a store visit is learning what customers are asking for, what they’re shopping and what they are buying and looking for beyond what’s in the store. Joe Nocera does a great job in this profile of Drexler from a few years ago.

Customers are a retailer’s key assets and the more those assets are cultivated the higher their value. J. Crew’s investors have always understood that.


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