BJ's Wholesale Rumors No Surprise To Analysts
When news broke last week that Natick-based BJ's Wholesale Club may be up for sale or could go private, Bill Dreher, an investment analyst with Deutsche Bank in New York, was not surprised.
This summer a Los Angeles-based investment firm named Leonard Green & Partners became a 9.5 percent shareholder of BJ's stock and made no secret about its intentions to seek changes for the MetroWest-based members-only club retailer. Changes could include a merger, an acquisition or a going-private transaction.
"BJ's going private is more than just speculation at this point," Dreher said. "They have a significant investor who has stated publicly intentions to makes some waves."
Providing even more fuel to the speculation that changes could be coming for BJ's was news last week that the company has sought a New York-based investment banking firm to explore options.
According to Dreher, the biggest reasons for possible changes are to expedite future growth plans. BJ's may also be a strong acquisition target for a company looking to establish or expand its Northeast presence, where BJ's has a concentration of locations.
Exploring Options
Leonard Green, the investment firm rumored to be involved, has about $9 billion in private equity capital and has invested $44 billion in 52 companies since it was founded in 1989.
It also has a strong retail presence. For example, Leonard Green has holdings in Whole Foods Market Inc., Rite Aid Corp., Sports Authority, Petco Animal Supplies, The Container Store and David's Bridal, among others.
Other retail analysts say the flurry of news about BJ's is a sign that a deal could be imminent. "Previously, we viewed management resistance as the biggest hurdle to a transaction. With reports suggesting BJ has hired an advisor for a potential auction, we now think management has become more amenable to a deal," Adrianne Shapira, an analyst with New York investment firm Goldman Sachs wrote in her most recent report.
Shapira pegged the chances that BJ's would be sold to be between 30 and 50 percent.
Dreher, with Deutsche Bank, said it's difficult to say what a sale of the company could mean for individual stores. It's most likely that whoever the new ownership is would be looking to grow the company's base, or integrate it in with other retail stores.
Meanwhile BJ's has been humming along for the past year posting positive quarterly earnings. In the second quarter of the year, sales were up 8.6 percent but profits were flat. In the first quarter, sales were up 13 percent and profits rose 7 percent to $26.1 million.
BJ's is expected to release third quarter earnings results on Wednesday, as well as hold a conference call with management. Dreher said he doesn't expect too much news to come out of that call related to a possible sale.
BJ's did not return calls for comment for this story.
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