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The Deal: Burlington to Raise $200 million in IPO

NEW YORK (The Deal) -- There's a bright spot in the recent tales of department store woes, and that's the turnaround of a retailer all but written off during the recession: Burlington Stores.

The discount store chain, which is based in the New Jersey town that gave the company its name, set the terms for its initial public offering Sept. 19, saying in a regulatory filing that it plans to offer about 13.3 million shares of its common stock at a price range of $14 to $16 per share.

At the midpoint of that range, the company would raise nearly $200 million, bringing the retailer's market cap to nearly $1.1 billion. That's doesn't include the underwriter's option to buy another two million shares.

Burlington expects to use proceeds of nearly $182 million toward paying off about $171 million in debt. As of Aug. 3, the company had nearly $1.7 billion in long-term debt and about $33 million in cash and cash equivalents, giving the retailer an enterprise value of about $2.8 billion.

A successful IPO could eventually mean a hefty payout to private equity backer Bain Capital, which acquired the company in 2006 for $2.06 billion, including a small amount of debt.

The firm has already made back its investments after it sunk $470 million into the leveraged buyout and was paid $600 million in dividends.

If the underwriters' exercise their option in full, the private equity firm's 93.3% stake for about 54.4 million shares will become 73.7%. At the midpoint of the price range, that would give Bain an additional unrealized gain of $816 million.

That would bring Bain's total gain, unrealized and realized, to $1.4 billion or nearly 3 times its original investment.

Burlington wasn't always looking like such a smart investment for the private equity firm, however.

The department store, originally known for its discount coat lines, was badly hurt in the recession. In January 2009, Moody's Investor Service downgraded Burlington from B2 to B3, citing weak second-quarter earnings and lower than expected holiday sales. By the third quarter of that year, Bain had written down its investment to $157 million, or 0.6% of its cost, according to a report to its limited partnerships obtained by Reuters.

But by 2010, under CEO Thomas Kingsbury's leadership - he came in 2008 from heading up store operations at competitor Kohl's - Burlington fine-tuned its merchandising strategy to make consumers aware it sold not just coats, but apparel and home furnishings as well.

His success has been such that his name has come up when potential turnaround executives for J.C. Penney  (JCP) and Sears Holding Corp. have been discussed, industry insiders said.

Burlington's same-store sales turned positive for three straight quarters in 2010, according to regulatory filings.

Capitalizing on its same-store sales growth, by November 2010, the company raised $1.5 billion in debt, refinanced existing debt and paid a $300 million dividend to Bain.

The company posted revenue of almost $4.17 billion and net income of about $25 million for the fiscal year ended Feb. 2, compared to revenue of nearly $3.89 billion and a loss of about $6 million for the same period a year prior. EBITDA has been on a steady rise, increasing to about $323 million for the year ended Feb. 2, from approximately $311 million for the year ended Jan. 28, 2012; and nearly $301 million in EBITDA for the year ended Jan. 29, 2011.

The company's enterprise value of about $2.8 billion is nearly 8.7 times trailing EBITDA.

Joint bookrunning managers for the IPO include JPMorgan Securities (JPM), Morgan Stanley (MS), Bank of America Merrill Lynch, Goldman Sachs (GS) and Wells Fargo Securities.

Co-managers include BMO Capital Markets, Guggenheim Securities, Telsey Advisory Group, Cowen & Co., SunTrust Robinson Humphrey Inc. and Ramirez & Co.

Kirkland & Ellis and Cahill Gordon & Reindel are providing legal advice on the offering.

Shares are expected to trade on the New York Stock Exchange under the ticker symbol BURL.

Burlington, founded in 1972, sells discount clothing and accessories, targeting primarily women. It operates 503 stores in 44 states and Puerto Rico, as well as an e-commerce business.

Written by Richard Collings.

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