Byline by Jennifer Herber, Managing Director, Stephens Inc.

The difficult macro-economic conditions of 2008 pervaded 2009, with consumer discretionary spending on the decline. With a few notable exceptions (Wal-Mart, Urban Outfitters and Buckle), many retailers have retrenched, focusing on core business lines, distribution channels and markets. Driven by consumer pessimism, the market has accorded historically low valuations (4-5x EBITDA or lower) to retailers -- some valuations barely account for the cash on retailers' balance sheets.  
 
Although the industry is troubled, there are many strong retailers in need of a capital infusion to ride out the storm. In the current constricted credit market, there is limited debt/ equity available. Retailers seeking capital need to consider alternative sources. Private equity firms, once relegated to the LBO market, are now looking for alternative ways to deploy unutilized capital, focusing on distressed investing, loan-to-own situations, private investments in public entities (PIPEs), partnering with corporate buyers and minority investments. With creative structuring available, retailers can accumulate capital without ceding majority ownership, governance and business strategy to a PE firm and without covenants traditionally associated with various forms of debt.

The facts described in the summaries have not been independently verified and the opinions expressed are the individual opinions of the authors, and that none of the summaries will be updated if additional facts come to light or if the opinions of the authors change in the future.