CPP Investment Board, Ares to buy U.S. retailer Neiman Marcus for $6B

TORONTO – A US$6-billion deal for American luxury retailer Neiman Marcus comes at a good time because the strengthening U.S. economy provides opportunities for growth, the Canada Pension Plan Investment Board said Monday after announcing it and a partner are buying the Dallas-based company.

“People feel more and more confident that the recovery is going to continue, and of course it’s much better to make an acquisition in the retail sector in that kind of environment,” said Andre Bourbonnais, vice-president of private investments in an interview.

“When you combine the brand with the growth prospect and the sector and the positioning they have in the market, we think that it’s poised for continued growth. And it’s rare that those kinds of assets come to the market so we think it was a timely acquisition for us.”

The CPP Investment Board and U.S. private equity firm Ares Management will be equal partners in the U.S. luxury retailer, while a Neiman Marcus management group will keep a minority stake.

The deal is subject to approvals but is expected to close in the fourth quarter.

Neiman Marcus is one of the largest luxury retailers in the United States, with 79 stores under the Neiman Marcus and other banners, including two Bergdorf Goodman locations in Manhattan.

The deal follows a similar move by the Ontario Teachers Pension Plan, which recently backed a deal by Hudson’s Bay Co. (TSX:HBC) to acquire U.S. luxury retailer Saks for US$2.9-billion. Teachers will buy about US$500 million of the equity.

There were reports in recent days that a deal between CPPIB, Ares and Neiman Marcus was in the works.

The retailer was previously owned by a group of investors led by TPG Capital and Warburg Pincus.

“It’s been operating under private equity for a long time so I think the management is comfortable in that environment,” said Bourbonnais.

Bourbonnais said the company does not currently have any plans to open up Neiman Marcus stores north of the border.

“The company will decide if and when it’s desirable, but there’s nothing in the works right now,” he said.

Ares said in a statement that the retailer’s global brand recognition made it an attractive deal.

“This investment fits with our longstanding approach of accelerating growth in companies in the consumer and retail sectors,” said David Kaplan, senior partner at Ares and co-head of its private equity group.

Karen Katz, the president and CEO of Neiman Marcus, said she has “great confidence that our customers, associates and vendor partners will share my enthusiasm that our new investors will help us pursue a business dedicated to luxury and fashion, attentive service and innovative marketing.”

The CPP Investment Board is a professional investment management organization based in Toronto that invests money not needed by the Canada Pension Plan to pay benefits. The CPP fund currently totals some $183.3 billion in assets.