New York and Tokyo—Although neither side has confirmed anything, the scuttlebutt in financial circles is that Fast Retailing, Asia’s biggest apparel retailer and owner of Uniqlo, is interested in acquiring J.Crew.
That follows speculation last week that J. Crew is looking to float an IPO. According to Reuters, One banker in Tokyo, who is not involved with Fast Retailing’s talks with J.Crew but knows Fast Retailing’s billionaire CEO Tadashi Yanai, says Yanai is looking at other brands, too.
Valuation Too High?
Evidently one of the chief stumbling blocks for Yanai is the reported $5 billion price tag for J. Crew, which is now owned by private equity firms, TPG and Leonard Green & Partners.
A $5 billion price tag implies a valuation of 17 times J.Crew’s enterprise value, including debt, over its earnings before interest, tax, before interest, tax, depreciation and amortization (EBITDA), reported Deutsche Securities analyst Takahiro Kazahaya.
Most retail mergers/acquisitions tend to be in the 7 to 8 times valuation, Kazahaya said.
For the year ended Feb. 1, J. Crew reported a 9% sales increase to more than $2.4 billion while EBITDA rose from $360 million to as much as $371 million.
“I would be unhappy if they bought the brand for $5 billion,” Kazahaya said.
“The timing of a deal couldn’t be better,” Kelly Tackett, an analyst at PlanetRetail, said “More important, the pairing of the two companies also would be a good cultural fit. Both share similar values, philosophies, and a passion for innovation.”
Sources have also reported that E. Land Group, the South Korean fashion conglomerate, is separately exploring a deal for J.Crew which E.Land has denied.
Buyout fund Advent International Corp is also interested in J.Crew, Bloomberg News reported.