Sunday, March 4, 2018

PEU Owned Retail Apocalypse Death List

ZeroHedge listed 23 retailers with plans to close stores and layoff employees.  Ten retailers have private equity sponsors.

In 2014 FT quoted a chief creative officer from a retail company that went through three private equity owners.

“What happens in private equity is they come in and they say we’re going to be a great partner. We want to hold this long term and we’re going to help you nurture and build this brand. [But] the day after signing, they talked about selling the business.”
Private equity underwriters also like to pull cash from affiliates via deal fees, management fees and dividends/distributions.   Payless paid its PEU owners $400 million in debt funded dividends which helped tip the company into bankruptcy.

Dividend recapitalizations transfer vast sums from affiliates to PEU parent.  PEU founders have been enriched by sponsors sucking cash in a non-nurturing move.  Debt bloated balance sheets can tip affiliates into bankruptcy.  When that happens creditors have no recourse to money pushed up to the PEU parent.

Update 3-6-18:  NPR's Marketplace found this pattern of debt funded, management fee cash migration to parent in its piece this afternoon.

Update 3-8-18:  Add Apollo affiliate Claire's to the list of near bankrupt retailers.

Update 3-19-18:  Apollo Global lost Claire's to bankruptcy.