This document provides an overview and analysis of a potential leveraged buyout of Aeropostale. It summarizes Aeropostale's financial performance over the past 5 years, including annual sales growth of 14.9% and EBITDA growth of 23.9%. The document then evaluates the rationale for an LBO based on Aeropostale's strong brand, growth opportunities, and favorable industry positioning. Finally, it models an LBO transaction of Aeropostale at $33.18 per share, projecting a 39.2% internal rate of return and 5.2x cash-on-cash return at exit.
4. EXECUTIVESUMMARY
Price PerformanceTarget Overview
•Ticker: ARO
•Market Cap: $2,100MM
•Number of Shares: 81.8MM
•2011 EBITDA: $445 MM
•LTM P/EPS: 10.31
•Total Enterprise Value: $2,447.5MM
•5 Year Sales Growth: 14.9%
•5 Year EBITDA Growth: 23.9%
•5 Year Avg. ROE: 50.4%
•Leverage: 0.0x
•Price to Book Value: 5.0x
•Price to Sales: 1.0x
•S&P Rating: NA
Key Financials
•Company: Aeropostale
•Headquarter: New York, New York
•CEO: Julian R. Geiger
•Number of Employees: 17,828
•Specialty retailer of casual apparel and accessories
•Designs, markets and sells casual sportswear and other
fashion merchandise under its own brands, principally
targeted at customers 11 to 18 years old
•Products are sold at stores or at organized sales events at
college campuses
Valuation
4
•Stock Price: $25.68
•52 Week High: $32.24
•52 Week Low: $21.26
•Stock Beta: 0.28
Offer Price per Share $33.18
Fully Diluted Shares 81.8
Equity Purchase Price $2,713.1
Plus: Existing Net Debt (265.6)
Enterprise Value $2,447.5
Purchase Price
Exit Year 2016
Entry Multiple 5.5x
Exit Multiple 5.5x
IRR 39.2%
Cash Return 5.2x
Return
6. COMPANYOVERVIEW
Products and ServicesCompany Overview
Operates as a mall-based specialty retailer of casual
apparel and accessories
Designs, markets, and sells merchandise principally
targeting 14 to 17 year-old young women and men
Offers a collection of apparel, including graphic t-shirts,
tops, bottoms, sweaters, jeans, and outerwear, as well as
accessories, including sunglasses, belts, socks, and hats
Also offers casual clothing and accessories focusing on
elementary school children between the ages of 7 and 12
Company sells its products through its e-commerce
Website, aeropostale.com
As of March 15, 2010, it operated 895 Aeropostale stores in
49 states and Puerto Rico; 44 Aeropostale stores in Canada;
and 15 P.S. from Aeropostale stores in 6 states
CustomersIndustry Comparables
6
• Outerwear
•Footwear
•Swimwear
•Tank tops
•Shirts
•Jeans
•Underwear
•Accessories
•Fleece.
Principally targeting 14 to 17 year-old young women and
men
8. LBORATIONALE
Strong FinancialsValue Creation
8
•Excellent brand recognition
•Potential for SG&A expense reduction; Already
decreasing for the last five years
•Growth potential in emerging markets
•Potential to enter new market segments
•Adequate strategic buyers such as GAP stores
•Increased dominant position in 7-12 age segment
will increase visibility in investor community for IPO
•Adequate number of PE firms such as Bain Capital
(took Gymboree private) with matching investment
criteria
Viable Exit Strategy
•Strong defensible market position
•Produces easily recognized clothing styles
•Loyal and established customer base
•Very different selling strategy compared to
Abercrombie & Fitch and American Eagle Outfitters
Industry Positioning
•Large amount of cash in hand
•High ROE
•Heavy Asset Base for loan collateral
•Clean balance sheet with low Leverage
•Predictable and steady cash flow in the past
•Lowest P/E in the industry
34. EXITSTRATEGIES
Potential Strategic Buyers
34
Company Business Description Acquisition Rationale
•Focuses on casual wear for
consumers ages 18 through 22
•Has over 300 locations in the
United States, and is expanding
internationally
•Can reduce capacity in the
industry by combining with
Aeropostale
•Will give offer market entry to a
different segment
•Target market largely consists of
price conscious though still
fashion oriented teens to adults
•The clothing is more affordable
than its other Gap, Inc.,
counterparts
•Strategically fits into the business
model
•Reduces capacity and give a loyal
customer base
•Fashion retailer headquartered in
Columbus, Ohio and New York,
New York[2]
•Operates over 550 stores in the
United States and generates $1.8
billion in annual sales
• Primarily associated with women
brands, will give a foothold in the
men’s clothing.
35. EXITSTRATEGIES
Potential Financial Buyers
35
Private Equity Firm Industry Focus Comments
•Consumer Retail
•Media and telecommunications
•Industrials
•Technology
•Travel/leisure
•Health care
•Bought Gymboree for $1.8B
•
•consumer/retail
•Media
•Telecommunications
•Industrials
•Technology
•Travel/leisure
•Health care
•In the past have acquired
Neeman Markus, J. Crew.
•Chemicals
•Consumer products
•Energy & natural resources
•Financial services
•Health care
•Industrial
•Media and communications
•Technology
• Was interested in buying
American Eagle