Gymboree Hires Goldman Sachs to Auction Itself Off

Gymboree Hires Goldman Sachs to Auction Itself Off
Gymboree Hires Goldman Sachs to Auction Itself Off

After seeing interest from potential buyers, children's clothing retailer Gymboree has hired Goldman Sachs (GS) to auction itself off, and more private-equity firms have already stepped in to say they want to play, according to a New York Postarticle.

Gymboree (GYMB) is now reportedly interested in having a number of players make their best bids, a change in tack from it's previously reported position: Late last week, knowledgeable sources said the company was not holding an auction.

One advantage of an auction is it allows a company's board of directors to satisfy their fiduciary duty in seeking competing bids so there's no money left on the table, said a senior mergers and acquisitions attorney.

But auctions also have their downside, such as potentially slowing the process of reaching a deal because a number of parties have to kick the tires before making a bid. Then there's the issue of potentially setting the company up for an exodus of talent if an auction is held and no buyers come, leaving employees to wonder why they should stick around, says the attorney.

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In Gymboree's case, it appears that won't be the problem. An unsolicited offer last month from Apollo Management led to Gymboree's move to sell itself. Now, it looks like the auction may draw in Bain Capital, KKR, Apax Partners and Irving Place Capital, all of which have expressed interest in Gymboree, according to the Post.

Gymboree executives are reportedly looking to land a buyout price of $55 to $60 a share, which is within range of the 52-week high of $55.27 it hit last spring. Since reports surfaced late last week that Gymboree was in play, its shares have shot up to the high $40s from its recent doldrums in the high $30s to low $40s.

Despite the lingering weakness in the economy, the buyout shops are rather bullish on where they think consumer spending is headed, according to New York Post article. That opinion, though, runs counter to the assessment given by Gymboree's management following the release of its second-quarter earnings report, in which the company predicted third-quarter same-store sales may be flat to slightly down compared to last year's performance, a Barron's report noted.

On Thursday, Gymboree is slated to hold a conference call with analysts to provide its September business update. And given recent events, investors may want to listen in.