Children's clothing retailer Gymboree has agreed to be bought by asset management firm Bain Capital for $1.8 billion in what would be the sixth-largest private equity deal of the year.
Gymboree said Monday that the deal is for $65.40 per share, a 24 percent premium to Gymboree's Friday closing stock price of $52.95. The retailer, based in San Francisco, currently has about 27.3 million shares outstanding.
Gymboree stock surged 23 percent in afternoon trading on the news.
The news did not come as a surprise, as speculation about a potential acquisition had been brewing for a few weeks. Last week a report from The New York Post said Gymboree was seeking a deal between $55 and $60 per share, which the proposed buyout from Bain Capital exceeds. Aside from Bain, the report said KKR, Apax Partners, Irving Place Capital and Apollo Management were all potential bidders.
Sterne, Agee & Leach analyst Margaret Whitfield said in a note to investors that the offer is 57 percent higher than Gymboree's closing price on Sept. 30, which was the last day before market rumors began swirling about the company.
She added that similar specialty retail buyouts include accessories seller Claire's in May 2007, pre-recession, and Tween Brands in 2009, post-recession.
Apollo Capital Management bought Claire's Stores for $3.1 billion and Dress Barn acquired Tween Brands for about $157 million.
The size of the deal would rank it among the biggest buyouts so far this year, according to Mergermarket, which tracks mergers and acquisitions. The top five, excluding the assumption of debt, include the $3.93 billion acquisition of hotel chain Extended Stay by a group of investors led by private equity firm Centerbridge Partners LP, which closed in July; The Carlyle Group's $3.8 billion buyout of NBTY, which closed in October; private equity firms Silver Lake andWarburg Pincus' $3.4 billion offer for Interactive Data, announced in May; 3G Capital's September agreement to buy Burger King Holdings for $3.26 billion, and private equity firm BC Partners and technology investor Silver's bid in July to acquire health care cost-management company MultiPlan Inc. in a deal reportedly worth $3.1 billion.
Gymboree, with offerings aimed at children, has fared better than some other clothing retailers. Its profit and revenue have risen in each of the past five quarters.
But Stifel Nicolaus analyst Richard Jaffe said the deal values Gymboree richly, "despite what we believe to be modest growth potential and operating margin expansion," he said. "Clearly private equity investors value these companies more richly than stock market investors."
He suggested that other retail companies that might be takeover targets include teen retailer Aeropostale , women's clothing seller Chico's and children's clothing seller The Children's Place.
Bain Capital's affiliates are likely to start a tender offer shortly after an agreement is executed. The firm has committed financing from Credit Suisse and Morgan Stanley in an amount necessary to complete the acquisition. Bain Capital may push back the closing under certain circumstances in order to complete the financing, the companies said.
"Gymboree is a terrific company with incredible brand strength and a large population of extremely satisfied customers," Jordan Hitch, Bain Capital managing director, said in a statement.
Gymboree may seek third-party offers for 40 days through Nov. 20.
The acquisition is expected to close by the end of the year if the tender offer is successfully completed.
The company, whose stores include Crazy 8, Janie and Jack and its namesake, had 1,037 stores as of Oct. 2.
Gymboree's stock surged more than 22 percent, after earlier reaching a 52-week high of $65.18. The stock had traded between $37.26 and $55.27 during the past year.