Could J. Crew Have Gotten a Sweeter Buyout Deal?

Shares of J. Crew (JCG) jumped 16% on Tuesday after the specialty retailer confirmed a New York Times report that it was considering a $2.8 billion buyout deal from two private equity firms. TPG Capital and Leonard Green & Partners offered $43.50 a share for the popular retailer, approximately a 15% premium over its Monday closing price of $37.65.

Shares of J. Crew surged 16.7% to end the day at $43.95.

Given that J. Crew stock has traded as low as $30.06 and as high as $50.96 over the last year, investors may wonder who got the best of this deal. Already, shareholder groups are investigating whether J. Crew's board acted hastily in selling the firm.

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Analysts at Janney Montgomery Scott think the deal makes sense, but they also signaled that there may be hope for investors looking for a higher sale price. In an analyst note, the company said it "[does] not see any significant obstacles to the deal getting done, although we cannot rule out the potential for a sweeter deal."

Morningstar Analyst Zoe Tan says the deal is great for investors, but also theorizes that the private equity firms probably have a solid plan in place to maximize the company's value. In an analyst note, Tan says the PE firms could take the typical approach of leveraging up the company and squeezing more cash out of it, but they might also have another idea in mind.

"One possibility is that the allure of J. Crew rests with the expansion of newer concepts such as the bridal and men's segments, as well as the Madewell brand," Tan wrote. "Additionally, the firm may be looking for additional capital to jump-start its international expansion, which effectively began earlier this year with a partnership with online retailer Net-A-Porter, enabling J. Crew to ship its products to 170 countries."

It is that type of growth potential that shareholders may feel has been forfeited with the sale, but there is no way to know what impact the high cost of expansion and the challenge of operating in a sluggish economic environment will have on J. Crew's future stock price. There's also no telling how long investors might have to wait to realize any profit from potential global expansion above the $43.50 per share offer.

If the private equity firm's are successful, after reaping the benefits of increased profits through global expansion, J. Crew's strong brand name would make it a very attractive candidate to bring back to the capital markets through a future IPO.

The deal is expected to close in early 2011.