Potential Buybuy Baby Deal Portends a Rising Retail Trend

There might be a beyond for Bed Bath & Beyond after all. Or at least some kind of retail purgatory.

The home goods retailer, which filed for bankruptcy in April, is reportedly negotiating the sale of its Buybuy Baby chain to Go Global Retail and the intellectual property rights of its brand to Overstock.com.

The potential sales would be the latest in the a swarm of deals this year as buyers pick over the carcasses of retailers whose individual assets -- leases, inventory, brands -- seem to be worth more than the companies itself. And we’re likely to see even more deals given the difficult conditions retailers face and the emergence of deep pocketed private equity players looking to buy once popular brands on the cheap and flip them into significant returns.

Private Equity Sniffing Out Retail Brands

For example, in May, Authentic Brands Group, which owns once popular mall-based apparel retailers like Forever 21 and Nine West, bought the intellectual property of clothing chain Vince.

B. Riley Financial and private equity firm Irradiant Partners, along with a consortium of retail executives, bought the parent company of The Vitamin Shoppe and Pet Supplies Plus in a debt deal worth $2.6 billion. And Solo Brands purchased TerraFlames, which sells fire pits, fire bowls and an indoor portable s’mores roaster -- for an undisclosed amount.

Go Global Retail, the private equity-backed firm that wants to purchase Buybuy Baby, bought the Janie and Jack childrenswear chain from The Gap Inc.  (GPS) - Get Free Report in 2021.

And WHP Global, which is trying to revitalize Toys R Us, recently partnered with Express Inc. to purchase Bonobos from Walmart Stores Inc.  (WMT) - Get Free Report for $75 million. WHP Global announced last March that it received a $375 million investment from Ares Management Group to pursue deals.

Retailers themselves often benefit from the demise of their peers. Five Below Inc. said earlier this week that it acquired nearly 20 leases from bankrupt home goods retailer Tuesday Morning. As a result, the extreme value chain, which targets tweens and teenagers, said it will exceed its goal of opening 200 new stores by the end of the year.

More Deals to Come

After a drought of deals because of the pandemic, the mergers and acquisitions market for retailers will likely heat up this year, according to Bain & Company consulting firm.

“Retailers that achieve outsized total shareholder returns get two things right: they engage in frequent and material M&A and they take advantage of economic downturns to make bold moves in M&A,” the Bain report said.

“Indeed, in the last half of 2022, we began to see early signals of a resurgence of scale deals. Companies are beginning to draw on record levels of cash amassed during the covid-19 pandemic and decade-low multiples -- lower than in any other major industry, in fact -- to pursue scale deals.”