Amanda Briskin, the founder of Mimco, and other retail entrepreneurs who sold their businesses to private equity last year had perfect timing.
They sold at the right time – at the top of a long-running retail boom. Briskin, who started handbag and accessories company Mimco 11 years ago with $5000 and a design for two handbags, sold the company for $45 million in August 2007 to Gresham Private Equity.
The private equity firms that have had a voracious appetite for retail businesses over the past few years, buying the likes of Witchery and Rebel Sport, are now being forced to sit tight as earnings multiples of retail businesses are falling dramatically.
Late last year, private equity funds, including Pacific Equity Partners, Ironbridge Capital and Texas Pacific, were readying retailers such as Myer, Super Amart, A&R Whitcoulls and Godfreys for sale within 12 months.
These plans are now on hold, reports The Australian Financial Review, thanks to falling consumer confidence and the credit crunch, which have seen values for retail assets fall by 25% to 30% this year.
Retailers were securing multiples of 8 to 10 times EBITDA earnings for their businesses at the top of the market. Not anymore. That’s come down to 5.5 to 7.5 according to Kevin Jacobson of Momentum Private Equity.
Private equity firms and retailers are unlikely to unload their retail assets – by IPO or trade sale – under these conditions.