The Canadian Pension Plan Investment Board is taking a big stake in the U.S. luxury retail market, teaming up with a U.S. private equity partner, Ares Management LLC, to acquire a majority stake in Neiman Marcus Inc. for $6-billion (U.S.).
The two buyers are splitting an equal interest in the upscale retailer, with Dallas-based Neiman's management team retaining a minority interest in the business.
The transaction includes not only the 41 Neiman Marcus stores, but also two Manhattan-based Bergdorf Goodman stores and 36 discount Neiman Marcus outlets named Last Call. There is also an online division of the company that operates alongside these businesses.
"This is an excellent opportunity to invest in a leading omni-channel luxury retailer, operating two of the most iconic retail brands in the U.S.," said André Bourbonnais, senior vice president of private investments at CPPIB.
He cited an expected increase U.S. luxury spending as one of the attractions to the deal, and said the Neiman's "strong market position" would help it build on the existing business.
The transaction is expected to close before the end of the year.
Neiman, with sales of about $4.5-billion in its latest year, has been owned by private equity firms TPG Inc. and Warburg Pincus since 2005, when they bought the company in a leveraged buyout for $5.1-billion.
Neiman's owners have been in pursuit of a strategic change.
The luxury retailer was preparing for an initial public offering, having filed a registration statement with the Securities and Exchange Commission in June.
But TPG and Warburg Pincus are now selling their stake in the business while U.S. equity markets have been strong – the S&P 500 has climbed 16 per cent in the last year and consumer discretionary spending figures have shown modest improvements in recent months.
Pension plans have been investing in retail – including U.S. luxury chains – and Ares and CPPIB have partnered before. In 2011, after the worst of the recession, they acquired a majority stake in 99 Cents Only Stores for $1.6-billion.
The deal also comes hot on the heels of the Ontario Teachers' Pension Plan's investment in Hudson's Bay Co. to help pay for its acquisition of high-end department store Saks Inc. In late July, Teachers put $500-million into HBC to help in that deal, which could act as a benchmark to help price a Neiman Marcus takeover.
And last month, Ares partnered with Teachers to buy CPG International Inc., a company that makes engineered building materials at a time when the U.S. housing market is recovering and spending on home-improvement projects is bouncing back.
CPPIB and Ares were in discussions Sunday for Neiman Marcus, though few details were available.
CPPIB is focused on long-term investing and has spent the past few years hiring managers and experts who can spot opportunities around the world in a variety of industries. The pension fund picked up a 50-per-cent interest in a South Korean real estate investment trust in August, for example.