NATICK, Mass. — Private equity investor Leonard Green and Partners last week revealed it had purchased a 9.5% ownership stake in BJ's Wholesale Club, and that it intended to discuss taking the warehouse club operator here private.
Leonard Green is a Los Angeles-based investor with a long history of retail investments, including current holdings in Whole Foods Market, The Container Store, Petco, Neiman Marcus and Rite Aid. In a filing with the U.S. Securities and Exchange Commission last week, Green said it acquired BJ's shares “in the belief that the shares were undervalued.”
Green in the filing said it intended to contact representatives of BJ's “to engage in a dialogue regarding potential options for enhancing shareholder value. These discussions may include a ‘going-private’ transaction, new financings (potentially through mortgage financings or sale leaseback transactions) or other similar transactions.”
News of the Green investment accompanied an increase of more than 15% in BJ's stock. BJ's wasn't immediately available for comment last week.
BJ's has long been the subject of takeover speculation. Its low debt, strong cash generation and relatively inexpensive price — particularly as an expression of enterprise value to EBITDA — make it an attractive candidate for a leveraged buyout, according to Joe Feldman, an analyst who covers BJ's for Telsey Advisory Group, New York.
“Leonard Green is a pretty credible LBO shop; they're in the business of taking big equity positions and taking companies private,” Feldman told SN. “This seems more credible than just an activist investor that's out there just trying to prop up the stock price. I don't think they're just going to sell out tomorrow and say, ‘We made a nice move.’”
BJ's, Feldman said, has been executing well recently but its stock has languished along with the broader retail market. Going private would allow the company to undertake a growth strategy out of the glare of the public markets.
Leonard Green on its website said it targets cash-flow positive businesses that have the ability to grow by at least 50% over a five-year period.
Analysts said BJ's has improved its performance since 2008, when a remerchandising initiative under Laura Sen, its current chief executive officer, rid the chain of slow-moving items. However, officials have recently been cautious about the company's growth prospects in the uncertain economy.
“It's definitely not a broken retail model. They're not a poorly run company that needs new management,” Feldman said.