NEW YORK ( The Deal) -- Neiman Marcus Group has agreed to be acquired by private equity firm Ares Management and Canada Pension Plan Investment Board from TPG Capital and Warburg Pincus for $6 billion, it was announced on Monday, Sept. 9.
The $6 billion price tag equates to the seller ringing up $3.3 billion at the cash register when about $2.7 billion in long-term debt is deducted from the total purchase price.
The pension plan and private equity firm buyers will each hold equal stakes in the department store chain, according to the announcement, with management holding a minority stake. The deal is expected to close in the fourth quarter. CEO Karen Katz will remain at the helm of Neiman Marcus.
In their 2005 $5.1 billion leveraged buyout of the Dallas-based retailer, TPG and Warburg paid about 9 times the $519 million EBITDA Neiman's generated for the 12 months preceding July of that year. Today, they are selling it for about 9.5 times the $630 million in EBITDA it generated for the 12 months ended April 27.With their holding period stretching into eight years, Neiman's private equity owners jumped at the chance to sell their portfolio company, rather than risk the longer lockup periods required in an initial public offering, a source said. (Neiman Marcus filed its S-1 for the IPO with the Securities and Exchange Commission in June.) Yet the auction process was a competitive one, according to another industry source. That source said the IPO was always on the table, given expectations for a robust public offerings market this fall. This was the second major luxury department store deal this year, following Toronto-based Hudson's Bay Co.'s $2.9 billion purchase of Neiman competitor Saks (SKS - Get Report), unveiled on July 9. The price Hudson's Bay paid for Saks was nearly 11.2 times its estimated $260 million in forward EBITDA for fiscal 2014, ending Jan. 31, 2014. The purchase price was also about 10.7 times the $271 million in trailing EBITDA it generated in fiscal 2013 ended Feb. 2. That deal gave hope to Neiman Marcus' private equity backers, which sought a multiple closer to the one Saks commanded, sources said. However, Saks' real estate was still considered more of an asset than what was contained in Neiman's real estate portfolio, those sources said.