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Canada Pension Plan to Acquire Neiman Marcus Despite IPO Registry

In July, the distinguished luxury retailer Neiman Marcus registered for an initial public offering. The current owners of the department store chain are a group of investors led by private equity firms TPG Capital L.P. and Warburg Pincus LLC. In response to losses in Neiman’s credit facilities, according to Reuters, the group had been seeking a non-public buyer among private equity firms and even sovereign wealth funds, but the offers did not meet price expectations. Those efforts were exhausted, and an IPO seemed to be the best remaining option.

That strategy changed this week with the announcement that an acquisition deal has been struck. The Canada Pension Plan Investment Board and the investment firm Ares Management LLC have agreed to buy Neiman Marcus and its subsidiaries for $6 billion. This represents a sturdy profit for the TPG/Warburg Pincus group, which took the retailer private in 2005 for $5.1 billion.

The retailer operates 41 Neiman Marcus stores nationwide, along with Manhattan luxury department store Bergdorf Goodman and an outlet chain. While the company took a deep revenue hit in 2008 due to the banking crisis, this year the stores were back to their pre-recession levels of profitability, Reuters says. In the 12-month period ending April 27, its revenues reportedly grew by 6.5 percent to $4.5 billion.

Some of the $6 billion purchase price will be applied to Neiman’s credit facilities and stabilize the company. In a statement, a spokesperson for the Canada Pension Plan Investment Board said the fund expects U.S. luxury spending to rise in the near term. The head of Ares Management’s private equity group issued his own statement praising Neiman’s CEO and saying the firm shares Neiman’s vision.

Source: Reuters, "CORRECTED-UPDATE 1-Canada Pension Plan, Ares to buy Neiman Marcus for $6 billion," Phil Wahba, Sept. 9, 2013

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