PE’s retail riddle

It’s hard to think of a more difficult thing to sell right now than a retail chain – particularly if the vendor is a private equity firm.

The fallout from the collapse of private-equity-owned book chain operator RedGroup retail is fresh in the minds of all in the business community.

Meanwhile, the fate of another private equity business, Colorado Group, remains very much in the balance.

But there are a range of assets on the table from the private equity community right now, including the Bras N Things business (part-owned by veteran retail entrepreneur Brett Blundy), the Witchery and Mimco fashion chains and Collins Foods, which owns 114 KFC outlets in Queensland.

Many of these assets were picked up prior to the GFC, when credit was easy and consumers just couldn’t stop spending.

But conditions are very different now, and while private equity firms like to sell out of an investment within five years, that won’t be as easy as they hope.

Reports already suggest prices discussed for Bras N Things are $100-150 million below the $400 million price the owners were hoping for.

These assets sales will be closely watched for a number of reasons.

Firstly, they will provide market watchers with a great guide to how investors see the private equity market at present. Investors always have a suspicion that private equity-owned businesses have had all the juicy value extracted from them, with costs cut as hard as possible. What these PE sellers will need to demonstrate to buyers is growth potential.

Secondly, this is a great test of how the market views retail in general. These are strong brands, but with the way the retail sector is heading long-term, are there buyers out there prepared to stump up big amounts for a retail chain?

Time will tell.