Two things on my mind today, Kohl’s and Sri Lanka.
Franchise Group, a portfolio company of ours, is submitting a bid for Kohl’s this morning at $69 / share. Franchise Group joins a crowded bidding war consisting of:
- Hudson’s Bay, the department store at $70 / share
- Leonard Green and Authentic Brands Group (another portfolio company via Simon Property Group’s ownership of ABG)
- The retail vampire Sycamore Partners along with Starboard Value
Kohl’s feels a bit different than the prior string of retail M&A. Authentic Brands / Simon Property were feasting out of a back alley dumpster on brands since Covid (and before) including purchases of Brooks Brothers, JC Penny, Eddie Bauer, Reebok, Forever 21, Barney’s, and more. Mostly they were bought at deeply distressed prices, with many purchased for something like 1x EBITDA or the value of the inventory on hand. Franchise Group was part of a deal that bought Justice and repositioned it to gush cash.
Sycamore has a long history of retail including Express, Hot Topic, J Jill, Staples, etc (including deals at their prior home at Golden Gate Capital) – but tend to slap max leverage on them, get their cash out, and have a free option on whether it survives.
It seems sentiment is a bit different this time around as the interest is before Kohl’s is on the doorstep of death. Furthermore a bidding war of material value has been rare of late. While I’m not close to Kohl’s business health, it is notable of where we are in the consumer apparel cycle.
Sri Lanka defaulted on its government debt. Here’s the statement from the Ministry of Finance:
As a place that we have visited, and loved, it’s sad to hear as undoubtedly things are far worse for the locals now than when we were there. A default will further drive capital from the private sector and result in more civil unrest along with greater hunger, disease, and unhappiness.
Globally, I believe that this is the first of multiple nations that are going to have difficulty in part from the war in Ukraine. Sky-high prices of basic needs for nations that must import those products is a disaster in slow motion as inventories run out and the next crop either doesn’t make it into the ground (Ukraine) or can’t leave the country (Russia).
Uncertainty breeds opportunity but it’s always prudent to wait for opportunity to hit one in the face versus be a “smart guy” and invest in a complex, multi-variable situation.
Disclosure: We own shares of Franchise Group, this is not investment advice. Do your own work.