Bain doubles down on Gymboree
From the outset, Bain Capital was smitten with Gymboree Corp. The private equity firm was convinced the children’s apparel retailer was recession-proof — a great brand with lots of growth potential. So in 2010, Bain outbid shops including Apollo Global Management LLC to acquire the company for the hefty sum of US$1.7 billion.
Seven years later, on the eve of a bankruptcy filing that people familiar with the matter have said could come from Gymboree as soon as June, Bain executives seem reluctant to give up on their big bet. They’ve snatched up Gymboree bonds as a way to retain a strong position in any revival, according to a person familiar with the matter. And just last week the company named a new chief executive officer with deep retail experience, who is charged with formulating a turnaround strategy.
Unlike buyout shops like Cerberus Capital Management or Platinum Equity, Bain typically opts for a smaller volume of acquisitions and selects companies it’s confident have potential to grow. Admitting defeat and walking away quickly from a busted deal isn’t in the firm’s DNA.
In the troubled retail industry, that’s a risky strategy. Numerous store chains weighed down by buyout debt and online competitors such as Amazon.com Inc. have sought bankruptcy in the past couple years. Some, like Sports Authority Inc. and Wet Seal, have not emerged. Gymboree has about US$1 billion in debt that Bain loaded on, an amount that company founder Joan Barnes characterized in an interview as “horrendous.”
Bain may be counting on Gymboree’s well-known brand to help keep it afloat even if the retailer enters bankruptcy, said Jeffrey Gleit, a bankruptcy lawyer at Sullivan & Worcester LLP. “Gymboree is a bit of an outlier in that it’s a good name and should survive.”
Bain beat a host of competitors to buy Gymboree, a company whose roots go back to 1976 when it opened play and music centres for children.
It paid above the market average, though the U.S. was emerging from the financial crisis. But the retailer was seen as resilient and less vulnerable to economic downturns because parents were thought to spend more on their children during tough times.