NATICK, Mass. — The long-expected buyout offer for BJ's Wholesale Club here might have come just in time to strengthen the retailer's long-term prospects, some analysts said last week.
The wholesale-club operator, which had said in February that it was entertaining acquisition offers, and had been the subject of takeover speculation for several years before that, finally did receive an offer this month from a private equity consortium.
The joint buyout offer from Leonard Green & Partners and CVC Capital Partners could value the company at as much as $3.1 billion, some reports said. A specific price per share for the proposed buyout had not yet been disclosed as of late last week.
Going private would allow the 190-unit chain to make investments in technology, talent and other areas that it might not otherwise be able to as a public company that needs to show short-term returns, said Brendan Langan, director of retail insights in the Cambridge, Mass., office of consulting firm Kantar Retail.
“From what we've seen at other companies, like Dollar General, that need to make structural changes in their business, going private gives them more opportunity to do that in a private venue, and take a long-term view vs. managing quarter to quarter,” he told SN.
BJ's decision to go private has come at just the right time, he explained. While the company had been well-positioned to enter the recession, it is less well-equipped to compete in an environment of economic recovery.
“They did a good job [during the recession] building transactional loyalty with their members, and the challenge becomes how do they build their post-recession appeal beyond just coupons and small packs,” Langan said.
He also cited the increasing tendency for chains that BJ's competes against, like Wegmans, Target and Stop & Shop, to offer more club-sized packs.
“BJ's should be making changes to their business model because they are competing in a much more intense environment,” Langan said. “BJ's tries to target a 30% price gap relative to grocers, and their ability to do that is challenged.”
BJ's has let its prices creep up to boost margin, he said
The warehouse club chain does a significantly smaller portion of its business in non-grocery items than its much larger rival Costco, which also enjoys a broader quality perception among consumers, Langan said.
Langan said he would “not be surprised” to see other bidders emerge for BJ's, especially as private equity firms seek new targets for investment. He said he believes BJ's could pare down its store base in some markets, such as the Southeast, under private ownership.
A report in the New York Post last week said BJ's was seeking an offer of $55 per share, a premium of about 17% over its $47 trading price late last week. The offer from Leonard Green and CVC was for $50 per share, the Post said.