Shares in the designer sunk by 13% to $19.75 on Tuesday after it was reported on Monday that it would need to spend a few more weeks negotiating a potential sale.
Kate Spade stock's had gained more than 25% over the past three months as takeover speculation grew.
The handbag and accessories maker reportedly received an offer from Coach last week, according to Reuters. Michael Kors (KORS) is also interested in Kate Spade. Although it is not as actively pursuing a deal as Coach, people familiar with the situation told Reuters.
The extra time will allow potential buyers to better assess Kate Spade's first-quarter sales and negotiate a potential deal, the sources said. First quarter earnings will be released to the public on May 4.
M&A advisor Piper Jaffray say it would make sense for either Coach and Michael Kors to scoop up the company.
"We believe Coach and Michael Kors as potential suitors offer strategic value. While we could see Coach ultimately wanting to evolve its portfolio with an even great luxury angle, Coach buying Kate Spade could help improve the competitive environment for the accessible handbag market and see solid procurement savings as well," the firm said.
Coach CEO Victor Luis told TheStreet in January that any time there was uncertainty and variability in the market there will be opportunities for valuations to be more attractive.
"We know there are great brands that we can add value to that may be available in the market," Luis said. "We have nothing to announce. In general, I would say valuations are more attractive today than a few years ago. But, there could even be more opportunity in the months and quarters ahead."
What makes a tie up between Kate Spade and Coach so compelling aside from a good valuation and brand recognition are several things.
Coach would likely focus on accelerating Kate Spade's growing market share, especially in the wholesale market, where margins are expected to keep expanding.
Further, a combined pair would be able to better leverage its size as that wholesale sector dwindles, with Macy's (M - Get Report) store closure program expected to put increased pressure on brands attempting to get prized department store space.
Coach, for its part, has been on the hunt to expand its luxury empire. In December, it was revealed it had made multiple takeover offers to Burberry (BURBY) . Britain's largest luxury brand however rejected the offers, which would have valued the company at $20 billion.