Sycamore Partners Makes Third Retail Buy

Sycamore Partners, the private equity firm founded by former Golden Gate Capital executives, has clinched another retail deal.

New York-based Sycamore said today it agreed to buy Hot Topic, a teen retailer, for about $600 million or $14 a share. The sale is structured as a one-step merger with Hot Topic the surviving corporation, a statement says. The transaction, subject to customary closing conditions, is expected to close in Hot Topic’s second or third fiscal quarter.

Hot Topic started out in 1988 selling music-inspired accessories but now offers clothing like Twilight T-shirts and skeleton leggings. The company also owns Torrid, which sells clothing, lingerie and accessories for “young, voluptuous women” size 12 and up. Hot Topic, in February, reported fourth fiscal quarter sales of $233 million. It operates 600 Hot Topic stores and 190 Torrid stores.

Hot Topic was not seeking a deal, said Jennifer Vides, a company spokeswoman, in an emailed response to questions from peHUB. But once the company received the Sycamore offer, Hot Topic’s board determined that the premium was worthy of consideration, Vides said. Sycamore’s offer represents a 30% premium to Hot Topic’s closing share price of $10.75 on March 6. Lisa Harper will continue in her role as CEO and as a significant Hot Topic shareholder, Vides said.

The deal is the latest for low-profile Sycamore, which closed a $1 billion debut fund last year. Sycamore, a consumer- and retail-focused PE firm, is run by former Golden Gate executives Stefan Kaluzny and Peter Morrow. Kaluzny left Golden Gate, where he was an MD, in 2011 to launch Sycamore. Morrow, a former Golden Gate principal, joined him. Kaluzny and Morrow are Sycamore’s founding partners and MDs.

Kaluzny, a noted retail executive, was reportedly key in Golden Gate’s buy of Express from Limited Brands in 2007. That led to Sycamore buying a 51% stake in Mast Global Fashion, a third party apparel sourcing division, in November 2011, according to The Deal. The transaction was valued at $300 million, The Deal said.

Last August, Sycamore completed its buy of Talbots, a women’s retailer, for about $391 million. (Sycamore invested $175.5 million, according to an SEC filing). Sycamore also owns Pathlight Capital, a consumer-retail lender. In September, Pathlight served as administrative and collateral agent on a $50 million loan to Furniture Brands, a home furnishing company. Pathlight also acted as syndication agent for a $100 million term loan to RadioShack in October. RadioShack was the subject of intense buyout speculation in 2010, which came to nothing.

Peter Comisar of Guggenheim Securities provided financial advice to Hot Topic. Cooley was their legal advisor. David Russell of BofA Merrill Lynch provided financial advice to Sycamore. Winston & Strawn along with the Law Offices of Gary M. Holihan were Sycamore’s attorneys.

A Sycamore spokesman declined comment beyond the press release.

Photo courtesy of Hot Optic