A second major Canadian pension fund is poised to take a big stake in the U.S. luxury retail market.
The Canadian Pension Plan Investment Board is in advanced talks with a U.S. private equity partner, Ares Management LLC, to acquire Neiman Marcus Inc. for about $6-billion (U.S.), American news outlets reported Sunday.
If talks are successful, the deal would come 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.
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.
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.
One arm of the teachers' investment group has been focused on luxury brands in recent months, and the pension fund has had an investment in clothing and accessory retailer Michael Kors since 2011, although it has sold some of that stake.
CPPIB and Ares were in discussions Sunday for Neiman Marcus, though few details were available, The Wall Street Journal and The New York Times reported.
Officials of Neiman Marcus, Ares and CPPIB would not comment.
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.
That would allow owners TPG and Warburg Pincus to sell 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.
But the two private equity funds would be able to cash out quicker and lock in their gains if Neiman can be bought outright by other private investors rather than selling off shares into the public markets, the Journal reported.
But according to reports there are still a few hurdles being negotiated around this deal, and an agreement had not yet been cemented. Neiman Marcus is also affiliated with high-end retailer Bergdorf Goodman and has a discount outlet called Neiman Marcus Last Call.
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.