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Why Advent is buying stake in Lululemon

Advent International is willing to pay a premium to acquire half of Lululemon founder Chip Wilson's stake in the athleticwear company—a move based on the private equity firm's confidence that the brand is in the early innings of its life cycle, a source close to the deal told CNBC on Friday.

The source said Advent thinks the deal will provide a tremendous long-term opportunity for the fund, which previously invested in the company in 2005. It exited this investment in June 2009.

A Lululemon Athletica store is shown in Pasadena, Calif.
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A Lululemon Athletica store is shown in Pasadena, Calif.

The private equity firm and the two executives joining the board, Advent Managing Partner David M. Mussafer and Managing Director Steven J. Collins, will look to improve the yogawear-maker's performance by improving online capabilities, helping the brand connect with consumers and expanding its global reach, the source said.

Read MoreLululemon founder to sell half his stake for $845M

The company currently operates fewer than 300 stores in nine countries.

"Lululemon is a business that we know well and we believe has continued growth potential, both domestically and internationally," Mussafer said in a news release Thursday. The firm declined to comment beyond the release.

Despite the growing popularity of the athleticwear market, Luluemon's shares have been sliced in half from their all-time high of $82.50 in June 2013. The company's troubles began last year when it recalled its luon pants for their potential to pill and become sheer, and became worse after Wilson's comments that the pants weren't meant for all women's bodies.

Its problems have been exacerbated by failing to spark consumer interest in its more fashionable product, and the growth of brands such as Gap's Athleta.

Lululemon said Thursday that Advent would acquire approximately 13.85 percent of its outstanding shares for about $845 million, a roughly 8 percent premium to its closing price on Thursday, Wells Fargo analyst Paul Lejuez wrote in a note to investors.

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Lejuez, who has a "market perform" rating on the stock, said in the note that although Lululemon remains an attractive square footage growth story, changes—including those to its product mix—may continue to pressure margins.

Lululemon shares rose slightly on Friday to near $40.

By CNBC's Courtney Reagan and Krystina Gustafson

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