Ann Taylor Reportedly In Talks With Golden Gate Capital For A Buyout

The parent company of Ann Taylor and LOFT, Ann (NYSE:ANN), is in talks with Golden Gate Capital for a probable buyout, according to a Reuters report published last week. People close to the matter claim that the management is in advanced one-on-one negotiations with the private equity firm, and the deal could be finalized sometime this week. Still,  there is no certainty that the ongoing talks will reach a conclusion and Ann could remain a publicly traded company. The deal could value the company at around to $2 billion, which is about 10% premium to its market cap as well as our value estimate for the company. Following the report, the company’s shares jumped 12%, indicating the investor optimism around the potential deal. ^[1]

The report also said that Bain Capital LLC had also come forth as a potential suitor, but it soon pulled out of the process. Last year, Golden Gate Capital had acquired a 9.5% stake in the company, saying that the market was not valuing Ann fairly. The speculation  around Ann going private began mid last year, when Engine Capital, which then held a 1% stake in the company, pushed the management to consider a sale of the company. This came as a surprise to many as the retailer was growing at a decent pace in an otherwise struggling industry and it still had some growth avenues to explore. According to a report published in the Wall Street Journal, Engine Capital had said that the company was undervalued and it could easily fetch $2.5 billion in a deal with a private equity firm. However at that time, Golden Gate Capital, Ann’s biggest investor, was not in favor of such a deal. ^[2]

Our price estimate for ANN stands at $40, which is just ahead of the current market price.

See our complete analysis for ANN

Soon after Engine Capital incident, the company signed a confidentiality agreement with Golden Gate Capital, that included discussions on several points regarding possible future options, to increase returns for shareholders. While Engine Capital was fixated on convincing Ann’s management to put the company up for sale, Golden Gate Capital had not shown any such interest. In response to the consistent pressure from the activist investor and its affiliates, Ann hired JPMorgan (NYSE:JPM) in late 2014 to look for possible sale options. With the agreement, Golden Gate Capital was included in the options review process, and Ann believed that the private equity firm’s expertise in retail would prove helpful.

It now appears that Golden Gate Capital felt that the public-private transition could be the best way out for Ann, given that its performance over the last year has been mediocre and it hasn’t gained any value since. Its market cap remains stable at $1.8 billion and Golden Gate isn’t valuing it in line with what Engine Capital believed was its true value. Last year, Engine Capital and Red Alder LLC cumulatively told the company’s management that it could fetch a price of $50-55 per share. According to the report, they believed that the company wasn’t moving fast enough in a challenging environment and were so confident in their proposal that they were ready to launch a campaign against the management. However, we believe that Golden Gate Capital is valuing the company more reasonably at $2 billion. We will keep an eye out for updates regarding the potential deal.

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1. Golden Gate Capital in one-on-one talks to buy Ann Taylor – sources, Reuters, May 6 2015 [↩]
2. Activist Investor Presses Ann Taylor for a Sale, The Wall Street Journal, Aug 25 2014 [↩]