Who says the era of retail buyouts is over? Although the credit crunch makes leveraged-buyouts difficult, it doesn't mean that all deals are off the table. A case in point is NRDC Equity Partners, which has announced plans to buy Fortunoff for $100 million, giving it a third retail chain to operate in addition to Lord & Taylor and Linens 'N Things.
On Monday, the Westbury, N.Y.-based upscale retailer of jewelry and home products said that it had agreed to be acquired by the Purchase, N.Y.-based private equity firm and was entering Chapter 11 of the U.S. Bankruptcy Code to further expedite the process.
New York City-based investment firms Trimaran Capital Partners and the Kier Group currently own 75 percent of the Fortunoff chain which operates 21 stores, while the Fortunoff family owns the remaining 25 percent. The sale is expected to close in March. Until then, NRDC Equity Partners plans to provide Fortunoff with a $10 million letter of credit, to allow it to continue operating its stores.
If the deal goes through, NRDC will be able to cut its operating costs by housing some Fortunoff stores within Lord & Taylor's 48 locations, says Howard Davidowitz, chairman of Davidowitz & Associates Inc., a New York-based retail consulting and investment banking firm. Both Fortunoff and Lord & Taylor customers skew older with ample disposable income and shop for value.
NRDC has also stated plans to start selling Fortunoff merchandise at those Lord & Taylor stores without a Fortunoff component. "Fortunoff has got a much more powerful home and jewelry section than Lord & Taylor and their price points are compatible," Davidowitz says. "I think they will keep a group of Fortunoff stores as stand-alones, but they'll pick certain Lord & Taylor stores that have excess space for Fortunoff [add-ons], because it will leverage their expenses more effectively."
Fortunoff locations are in New York, New Jersey, Pennsylvania and Connecticut; including four full-line stores in Westbury and White Plains, N.Y., Wayne and Woodbridge, N.J. and a jewelry store on 57th Street in New York City. Neither Fortunoff nor NRDC returned calls seeking comment.
Despite its troubles the 86-year-old chain is exceptional, according to George Whalin, president of Retail Management Consultants, a Carlsbad, Calif.-based consulting firm. But, he says, Fortunoff has been suffering from a lack of strong leadership since the death of its previous CEO, in 2000, Alan Fortunoff. "Fortunoff has wonderful cache with New Yorkers and I think it's a great acquisition."
However, Davidowitz noted, it's not certain the acquisition will be consummated. As of November 2007, Fortunoff had more than $300 million in debt and therefore any potential suitors would have to wait until the bankruptcy court judge determines what to do with the chain's assets, which are valued at $268 million.
He also has concerns about how much NRDC has been able to prove its operating savvy with Lord & Taylor since acquiring the chain in October 2006 for $1.083 billion; in partnership with Apollo Real Estate Advisors. "They are [telling] everybody that they are doing well, but there are no numbers," says Davidowitz. "I have some doubts as to how well they are really doing."
NRDC acquired Linens 'N Things, also in partnership with Apollo, in February 2006 for $1.3 billion. The two firms have yet to pay off the debt they took on to fund the acquisition.