) --

Children's Place

(PLCE) - Get Report

is a prime target for an M&A deal, according to Citigroup.

Analyst Kimberly Greenberger said children's apparel retailer Children's Place has "lower trading multiples and higher free cash flow yield," which makes it an attractive acquisition target.

Currently, Children's Place is trading at 10.3x 2010 P/E, compared with 15.8x for the sector, 3.2x EV/2010 EBITDA versus 5.9x for the sector, and has a 2010 free cash flow of 11.8% compared with 8% for the sector.


Dress Barn

( DBRN) acquired

Tween Brands


Charlotte Russe

went private. Both Tween and Charlotte Russe had higher multiples going into the deals.

If a deal were to materialize, Greenberger says a reasonable premium to the current market price is 27%, which would imply a deal price of about $38.

Greenberger did not mention any possible buyers.

"The possibility of a takeout helps protect downside potential in Children's Place and enhances risk/reward," Greenberger wrote in a note. "Other investment positives include the company's operating margin recovery opportunity, pristine balance sheet and favorable kids demographics."

Greenberger expects Children's Place will see December same-store sales accelerate after a disappointing 13% plunge in November.

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But many specialty retail M&As are "value destroying and end badly," she wrote. "If combinations do not have defensible cost or revenue synergies or have unique growth prospects in need of capital, they will likely be dilutive to earnings and return on invested capital."

Greenberger cites



sale of J.Jill, which was bought for just $75 million two years after the women's apparel retailer purchased the chain for $517 million.

Children's Place's acquisition of Disney Store North America and

American Eagle Outfitter's

(AEO) - Get Report

purchase of Bluenotes/Thrifty's were also "value destroying," she said.

Two successful acquisitions, Greenberger noted, were


(CHS) - Get Report

purchase of White House Black Market, and Dress Barn's acquisition of Maurices.

-- Reported by Jeanine Poggi in New York.

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