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Dover Saddlery positioned for take-private deal

by Sarah Pringle  |  Published September 25, 2013 at 1:54 PM

KatieDavilliJulietDover-LG.jpgIt looks as though Dover Saddlery Inc. may be the target of private equity firms hoping to leverage the equestrian retailer's dominant market position.

"You've got a great brand name and in a highly fragmented industry," Eric Kuby, chief investment officer of North Star Investment Management Corp., one of Dover's largest shareholders, said in a phone interview. "[Dover] has all the things that would be very expandable and it probably doesn't need to be trading publicly."

For Dover, whose shares trade on the Nasdaq under the symbol DOVR, the advantage of going private is that the company "could get a lot of capital quickly and ramp up growth plans," Kuby added.

Littleton, Mass.-based Dover said Monday it was exploring strategic alternatives to lift shareholder value.

Investors liked the news. Dover shares rallied 11.3% to close at $4.44 Monday, after finishing at $3.99 on Sept. 20. The stock traded relatively flat Tuesday, closing at $4.48. Overall, shares have advanced about 30% this year so far.

The retailer of horse supplies and riding apparel acknowledged Monday that it previously received unsolicited expressions of interest regarding potential strategic transactions, but said it isn't engaged in talks with any one party at this time.

Still, Kuby said the announcement of a strategic review came as a bit of surprise.

"From where we sit, we were happy with the plan as laid out beforehand, with three, four, five stores opening a year," Kuby said. "The timing seems a bit odd to us because the situation seems like things were just beginning to turn their way."

On Sept. 11, Dover subsidiary Dover Saddlery Retail Inc. stated plans to launch a new store in Austin, Texas, this fall, which would be its third new store opening announcement in just over a month. New locations in Winter Park, Fla., and Charlotte, N.C., are also expected to open this fall.

Other equestrian companies aren't likely to buy Dover given that most are mom-and-pop shops, Kuby explained. But he did note that a transaction might make sense for other players in the animal retail space, such as Petco Animal Supplies Inc. or PetSmart Inc.

In fact, that's precisely the route Dover CEO Stephen L. Day took almost two decades ago.

The avid equestrian is also the former chief executive of discount e-commerce equine business State Line Tack, which he ran from 1991 until selling it to Phoenix-based PetSmart on Jan. 30, 1996, for undisclosed terms. The Hazle Township, Pa.-based business has since been acquired by privately held TABcom LLC, formerly Pets United LLC, on April 30, 2007.

"The company's not struggling," Kuby said. "If there was going to be a transaction, it would have to be at some sort of healthy premium. We've been investing in the stock pretty aggressively for the last year because we think it's worth a lot more than $4 a share."

Chicago-based North Star owns approximately 10.75% of Dover's outstanding shares and began investing in the company about two years ago.

Duff & Phelps Securities LLC, led by managing director Josh Benn, has been engaged by the equestrian products retailer to assist in the review.

No timetable for the strategic review process has been set and a transaction isn't guaranteed.

The 38-year-old company most recently reported second-quarter revenue of $22.9 million, up from $21.1 million in the same period a year earlier. Its profit narrowed to $355,000 for the period ended June 30, from $400,000 a year ago.

Cash and cash equivalents totaled $254,000 as of June 30, while total debt amounted to about $12.7 million.

Dover officials did not return calls Monday.

Tags: Dover Saddlery Inc. | Dover Saddlery Retail Inc. | DOVR | Duff & Phelps Securities LLC | Eric Kuby | Josh Benn | North Star Investment Management Corp. | Petco Animal Supplies Inc. | PetSmart Inc. | State Line Tack | Stephen L. Day | TABcom LLC

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