As physical retail brands across the country struggle to stay afloat, one private equity firm is profiting off those struggles.
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Sycamore Partners has made a habit of purchasing distressed retailers, splitting them into pieces and selling off their most valuable assets. The firm then cuts costs on remaining business operations and at times uses savings gathered from those cuts to provide dividends for investors, the Wall Street Journal reports.
In June, Sycamore acquired Staples Inc. for $6.9B and later divided the business into three separate entities, though it has yet to sell any of the pieces.
Sycamore has also been known to make extra cash by acting as an intermediary between fashion retailers and their suppliers. This was the case with Talbots, which Sycamore purchased for $193M in 2012. In addition to cutting costs after the buyout, the firm also arranged to get a cut of the merchandise sold to the retailer through MGF Sourcing, the supply agency it owns, the WSJ reports.
So far, the strategies seem to be working and investors are betting on its success. Sycamore's first fund in 2012 raised $1B and posted annualized returns of 43% after fees, a significantly higher number than the 19% returns most U.S. buyout funds posted during the same period.
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