It’s the end of an era for Victoria’s Secret, the lingerie giant that for 28 years has been under the wing of mall retail group L Brands. On Thursday, private equity firm Sycamore Partners announced that it would acquire a 55% stake in the company for $525 million.
The deal, which takes Victoria’s Secret off the public market at a valuation of $1.1 billion, is notable not only for its relatively modest size (L Brands’ market capitalization has fallen from $29 billion at its peak in 2015 to around $6.5 billion today) but also for the brand’s new owner. Here’s what you need to know about the company:
1. Sycamore Partners has been involved in more than a dozen retail industry buyouts since it was founded in 2011. It has acquired, and later exited, several major names in footwear, including Stuart Weitzman, Nine West and Kurt Geiger. The New York-based company currently manages $10 billion in assets, and its retail portfolio includes Belk, The Limited, Talbots, Staples, Torrid and Hot Topic.
2. While the firm has reaped hundreds of millions of dollars in profits from its investments, its methods have often been controversial, in some cases saddling retailers with massive debt that eventually played a role in their bankruptcies. Arguably the highest-profile dispute centered on its $2.2 billion acquisition of The Jones Group in 2014. According to a lawsuit filed in early 2018 by creditors of Nine West Holdings, the collection of brands that remained after Sycamore sold off other parts of the Jones Group portfolio, alleged that the financial firm “engaged in outright fraud” at several points in the transaction.
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First, the suit alleged, Sycamore used deceptively low earnings projections to negotiate a low-ball $395 million purchase price for the Stuart Weitzman brand — also part of The Jones Group at the time — and then bumped these up to more realistic figures to sell the shoe company off to Coach Inc. (now Tapestry Inc.) for $548 million, pocketing the difference. The suit also accused the private equity firm of inflating earnings forecasts for the Nine West chain during the buyout, allowing the group to take on $1.5 billion in debt that it would ultimately be unable to repay.
Sycamore denied any wrongdoing, and there were months of contentious disputes that included Sycamore threatening to stop buying Nine West products at the department store Belk, one of its other portfolio companies, should the suit go forward. Ultimately, all parties settled early in 2019. Nine West emerged from bankruptcy in March 2019 under the new name Premier Brands Group Holdings LLC.
3. Several of the businesses Sycamore has exited are now in healthier positions. Kurt Geiger, another former Jones Group property, was bought by European private equity firm Cinven for a reported $372 million in December 2015. Since then, its new owners have focused on growing the business through international expansion, investing in new stores and technology, and growing its popular handbags category.
For the year ended January 2019, the brand’s earnings increased 5.7% to 38.1 million pounds ($49 million), while sales were up 3% to 349 million pounds ($450 million).
4. The private equity business is a controversial specter in retail today, with critics accusing firms of extracting profits from the companies they invest in while leaving the stores too cash-strapped to compete. Major shifts in consumer behavior and technological change have upended the market such that traditional retailers are a much riskier bet than they were in decades past, but rather than avoid the sector, some private equity firms have become increasingly brazen with their tactics in order to come out on top.
Last year, Sycamore stunned many analysts by securing a refinancing deal for Staples, the office supplies retailer it acquired in 2017, that allowed the firm to pocket $1 billion while reportedly saddling Staples with an additional $130 million in annual interest payments, according to Bloomberg.
“Retail had always been thought of as one of those industries that were good for private equity because it was steady and there hadn’t been these revolutionary changes over the course of 40 years,” Howard Berkower, attorney and partner at law firm McCarter & English, told FN in 2018. “Now it’s changed a lot and [PE owners] don’t have the skill set, the available equity or the firepower because [the companies they buy out are] already over-levered.”
According to a 2019 study from the progressive advocacy group Center for Popular Democracy, 71% of the highest-profile retail bankruptcies since 2012 were at private equity-owned companies. During that time, the study said, private equity’s investment in retail led to the direct elimination of 597,000 jobs.