March 30, 2007

BuyBuy Baby Bought By Bed Bath & Beyond

bbB-BBBY.jpgWhat the headline says. Bed Bath & Beyond [NASD: BBBY] announced last week that they had agreed to an all-cash acquisition of buybuy Baby [NADA, baby, they're privately held] for $67 million + $19 million debt retirement.

It should be a good fit. bbB was founded by Richard and Jeffrey Feinstein, after they left BBB. Their father, Leonard Feinstein, is the co-founder of BBB. [The three of them held that debt and, presumably, most all of that stock.]

Eight stores and $86 million is a pretty small acquisition for the $11 billion BBB, but it's actually worth more than Papa Feinstein's own remaining BBB holdings [the last registration has him holding just 671k shares worth around $27mm. By doing the deal all-cash, they're able to maintain somewhat the balance between the two co-founding families. [The other co-founders, the Eisenbergs, are art world acquaintances, which makes it more than a little weird to be discussing their money. But hey, it's the Feinstein's money, and besides, I'm a shareholder, too. I think I got a share for Christmas one year.]

The relevance to the DT world, though, is about what the sale means for buybuy Baby. Working back from the parent company's [heh] own market valuation of 1.78 x sales puts the kids' company's revenue at, what, $37 or $48 million, depending on whether you include the debt.

That's only an average annual revenue of $6 million/store, or, if the average store is 45,000 sf/ that's only $133/sf. That seems really low. BBB's own sales/sf looks low, too, but it was still $199 in FY2006. [The Fool had a quick analysis of why BBBY's lean operations produce fatter operating margins and ROI. They were stoked on the stock at 42 in January; it closed just over 40 today.]

If you take a lower multiple, say 1.25x sales, that translates to $53m or $69m, or around $191/sf. [But if they're doing as well as BBBY, why not use the higher multiple to value them? Maybe someone with some calculus and some time can solve this equation for us?]

So maybe BBB figures they help improve bbB's performance, or maybe it's fine. I think the real strategy, besides plumping up the Feinstein's mattresses a bit, is to BBB-ify bbB: to grow it from a smallish regional chain into a national baby/kid megaplayer. BBBY has over 800 stores while, I would point out--just for argument's sake, understand--that Babies R Us has 232 stores. I would expect a buybuy Baby boom in the next few years.

Bed Bath & Beyond Inc. Announces the All Cash Acquisition of buybuy BABY [prnewswire via dt reader monte]
BBBY: Bed Bath & Beyond quote & profile []


I am all for a buy buy Baby boom since currently BRU pretty much has a monopoly in San Diego and judging by the website, bbB seems to have a better selection.

It will be intersting to see if the selection stays the same as BBBaby goes national. I have to wonder if the many vendors who claim to be exclusive to "specialty stores" will pull out as BBBBaby goes "big Box".

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