Ann Inc. on Monday ended months of speculation over whether it would potentially sell or take private its Ann Taylor and Loft labels, when the specialty store's board agreed to be bought out by Ascena Retail Group for $2.2 billion.
But could other retailers be poised for a similar transaction?
In a note to investors on Monday, Jefferies analyst Randal Konik said the Ann deal could spur activity among other apparel retailers, as valuations in the sector appear attractive, and many companies could benefit from better operations.
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According to Konik, who in January listed Ann Inc. as the top name in his coverage unit for a leveraged buyout, Chico's, Guess and Michael Kors are the remaining top candidates. By comparison, Under Armour, Ulta, Lululemon and Ross are the least attractive names.
Konik calculated 10 factors, including earnings forecasts and the takeout price premium of each company, to determine his rankings.
"While we recognize that a company as large as Kors would be a challenging takeout candidate, its [score] validates our belief that Kors shares are undervalued in the market today given the company's industry-leading growth domestically, significant white space for growth internationally and favorable competitive positioning in the accessories space," Konik wrote in January. Since market close that day, Kors shares have fallen another 14 percent.
Teen retailers American Eagle and Abercrombie & Fitch—two names that are often the subject of takeover chatter—did not crack Konik's top five because of their "greater perceived fashion risk and volatility." He did not include the third "A," Aéropostale, in his analysis due to negative earnings projections for the brand through 2017.
Ann Inc.'s acquisition comes nine months after hedge funds Engine Capital and Red Alder, who together owned more than 1 percent of the retailer's shares, encouraged the board to explore strategic alternatives to boost shareholder value, including a potential sale. Earlier last year, private equity firm Golden Gate Capital disclosed it had a 9.5 percent stake in Ann Inc., raising speculation that it could take the firm private.
The news also comes just days after Leonard Green & Partners disclosed with the Securities and Exchange Commission that it now owns 0.6 percent of Bed Bath & Beyond's shares. That announcement triggered speculation the private equity firm could consider a buyout offer for the home goods retailer down the road.
In the first quarter, merger and acquisition activity was robust in the U.S. retail and consumer sector, including seven deals with a value of more than $1 billion, according to PwC. Total transaction value for the period was $78.8 billion, nearly three times higher than the fourth quarter and up 148 percent compared to the same period last year. That beat was in large part due to the Heinz and Kraft merger, which accounted for $53.1 billion.