Is There Any Containing This IPO?


Neat. Tidy. Compartmentalized. That's the way I like to keep things stored, and for many of those bins, boxes, and shelves needed to keep my stuff under control, I hit up The Container Store, a retailer that operates 62 stores in 22 states as well as the District of Columbia. It just filed a prospectus with the SEC for an IPO to raise the tidy sum of $200 million to pay dividends to preferred shareholders and pay down debt.

According to the filing, The Container Store registered more than $700 million in net sales in 2012, primarily from its eponymous store segment, which accounted for 87% of revenues, but another 13% from its Elfa closet organizer business based in Sweden. Over the first six months of 2013, consolidated sales were up 9% from the same period last year.

The storage specialist says it's enjoyed 13% consecutive quarters of positive comparable store growth while recording adjusted EBITDA improvement each year between 2008 and 2012. Even so, it has recorded net losses for the past three fiscal years, as well as over the 26-week period of 2013. It plans to trade on the New York Stock Exchange under the symbol "TCS."

The Container Store was founded in 1978 and was sold to private investors in 2007, with a majority stake given to retail investor Leonard Green Partners. With the average buyout having a lifespan of around 10 years according to some estimates, this going-public option halfway through its life cycle isn't completely odd, particularly as rumblings were heard earlier this year when the company's CEO told The Wall Street Journal he expected "some type of transaction in the future." Then this past summer it was said to be working with JPMorgan Chase to craft the public offering.

Yet as planned and organized as the filing appears to be, there's also the possibility it's little more than a ruse to hang out a shingle saying it's for sale and opening the door to another acquisition.

Earlier this year, high-end retailer Neiman Marcus filed a prospectus with the SEC for a $100 million public offering, but last month opted instead to get sold from one private equity group to another. TPG Capital, Warburg Pincus, and the same Leonard Green Partners sold the retailer to Ares Capital and Canada Pension Plan Investment Group for $6 billion.

LGP may be looking for an exit strategy from some of its holdings as a number of chains have started posting weak quarterly sales and the outlook for the Christmas season is muted. Nordstrom reported lower-than-expected second-quarter results, causing it to reduce its full-year guidance, while Saks came up short as well.

Yet Saks is also in the process of being sold for $2.4 billion to Canada's Hudson's Bay, North America's longest continually operated company (it was founded in 1670!) and the owner of Lord & Taylor department stores. So it shows there's still a rich market for retailers, which makes the sale of The Container Store a plausible outcome. And as private equity firm KKR was beaten out by the Canadian retailer for Saks, it might still be on the hunt for something to buy.

That might make the storage specialist's IPO a messier affair, but with plans to expand its footprint to as many as 300 stores nationwide, almost five times as many as it currently operates, should it actually make it to the public markets, investors may just want to box up The Container Store in their portfolios.

Lock, stock, and barrel
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