Leonard Green, the US buy-out group that helped take J Crew private, has cemented its reputation as the boldest investor in US retail after its $2.8bn bid for BJ’s Wholesale was accepted by the company.
BJ’s, which sells low-priced goods to fee-paying members at its industrial-style warehouses, said on Wednesday it had agreed to a bid of $51.25 a share, 5 per cent above its price the day before the bid was announced on June 17.
The deal marks another victory for Leonard Green, a secretive Los Angeles group that has set itself apart from its peers over the past decade with a variety of retail investments.
It will make the investment in partnership with CVC Capital Partners, a London-based private equity group that has also invested in Debenhams in the UK and in Leslie’s, a US swimming pool supplies retailer.
“Leonard Green likes to invest in category leaders in speciality retail niches,” said Josh Benn, managing director at Duff & Phelps, an investment bank.
The group has tended to buy retailers that have distinctive brands and formats, as well as management teams it rates highly. It has not done extensive financial engineering or implemented radical overhauls of the companies it has bought.
It did not respond to a request for comment though Jonathan Seiffer, a Leonard Green partner, said in a statement: “BJ’s is the clear leader in the wholesale club industry in the eastern United States with strong brand equity and a proven and successful strategy.”
The group said last July it had taken a 9.5 per cent stake in the warehouse club and was planning to talk to management about a variety of options, including taking the company private.
The buy-out is subject to the approval of BJ’s shareholders and regulators and is expected to close during the fourth quarter.
Given the difficulties in finding deals, bankers question whether other private equity groups will become equally forthright in approaching potential targets. Many are wary that could undermine their reputation for partnering with management to improve the performance of a business.
Leonard Green was last year a partner in TPG Capital’s $2.8bn buy out of J Crew, the preppy clothing retailer run by Mickey Drexler. Last December it bought Jo-Ann Stores, a fabric and craft retailer, for $1.6bn.
Against a backdrop of continued economic weakness, many of Leonard Green’s investments are in US retailers that cater to better-off consumers who are not suffering as much as low-income families from unemployment.
Although BJ’s is synonymous with discounted goods, it and other warehouse chains tend to attract customers with higher incomes than those who shop at Walmart, the US’s most dominant retailer, or dollar stores such as Dollar General.
Leonard Green’s portfolio includes investments in Neiman Marcus, an upmarket department store, and Whole Foods Markets, a high-end supermarket, as well as the Container Store, a home goods retailers, and Sports Authority.
It has most commonly exited deals by relisting companies on the stock market rather than selling them on to other buy out groups.