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Retail and consumer companies have long been favorites of private equity shops, but the changing tastes of consumers and the sometimes-slim margins can burn financial buyers.
A panel that included Carlyle Group managing director Pauline Brown, Brentwood Associates general partner Anthony Choe and Henry Nasella, a partner with LNK Partners, moderated by Telsey Advisory Group's managing director of analytics, Tom Chin, discussed the state of PE and retail this morning at The Deal's PE Symposium. In seeking out LBO targets, Choe said the "first thing we look for is differentiation; and the second is culture." All panelists agreed that its takes special skill sets for a management team to run a retail portfolio company, which can be hard to find. "Finding good management teams is the most difficult thing we face," said Carlyle's Sundip Murthy. In identifying a team, the panelists pointed out a few key characteristics:
1- People skills "[A team's] track record is critical," Nasella said. "Managers need to know what they know and what they don't know. It's about track record and human relations skills. ... As investors, we're not trying to go in and operate the business; and you can't engineer how the team works together to grow the business. You can't make a team work together, but you know it when you see it." Additionally, the team must be able to deal with the regular pressure of operating in the competitive retailing environment, but also to do so in a company that has a high level of debt, a circumstance that many retailing teams aren't used to. The panelists also discussed the role of real estate in retail LBOs. Only a few years ago, PE firms were rushing to acquire retailers in order to maximize the value of the underlying real estate, but that seems to have fallen off. "Real estate is now priced into the overall value of the asset," Brentwood's Choe said. "Real estate isn't high on the list of things we're thinking about."
Carlyle's Murthy said: "We're seeing fewer deals where real estate is the primary asset we're interested in."—George White
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