HBC to Acquire Neiman Marcus Group for $2.7B

HBC, the parent company of Saks Fifth Avenue, has agreed to acquire Neiman Marcus Group, the parent company of Neiman Marcus and Bergdorf Goodman, in a $2.7 billion deal.

Upon completion of the transaction, HBC will establish Saks Global, merging luxury retail and real estate assets. Current Saks.com CEO Marc Metrick will become the CEO of Saks Global.

Saks Fifth Avenue, Saks OFF 5TH, Neiman Marcus and Bergdorf Goodman will continue to operate under their respective brands.

The purchase will be financed through a mix of equity from new and existing shareholders and debt facilities. Amazon will be a minority owner in Saks Global and collaborate to drive innovation for customers and brand partners post-transaction. Rhône Capital will be the lead investor. Insight Partners and Salesforce will also become shareholders.

HBC secured a $1.2 billion term loan from Apollo-managed investment funds and a $2 billion revolving asset-based loan facility from a consortium of lenders, including Bank of America, Citigroup, Morgan Stanley, RBC Capital Markets and Wells Fargo.

A luxury retail portfolio

Saks Global will incorporate HBC’s and Neiman Marcus Group’s U.S. real estate assets, amassing a $7 billion portfolio of prime retail properties in top luxury shopping locations. Ian Putnam, currently president & CEO of HBC Properties and Investments, will become CEO of Saks Global Properties and Investments.

The new entity plans to enhance the luxury shopping experience by investing in seamless access to a wide range of fashion choices across all channels, according to a release. Leveraging the legacy of its retail brands, it will advance online functionality and fulfillment processes. Additionally, the firm aims to enhance personalization using first-party data and AI, creating individualized online shopping experiences and enabling sales associates to better serve customers.

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Upon closing, HBC’s Canadian business will be recapitalized as an independent entity with reduced leverage and increased liquidity. HBC will retain full ownership of its Canadian retail and real estate assets.

Such an acquisition has been considered for years, mainly because of the decrease in NMG’s total revenues. In 2013, the Canada Pension Plan Investment Board and private equity firm Ares Management acquired NMG via a $6 billion leveraged buyout that replaced old debt from another buyout in 2005, according to The Dallas Morning News.

Challenged by the pandemic

During the COVID-19 pandemic, Neiman Marcus initiated Chapter 11 restructuring proceedings in the U.S. Bankruptcy Court for the Southern District of Texas. Following the completion of this process, Neiman Marcus successfully reduced its debt by more than $4 billion and lowered annual interest expenses by $200 million.

The owners at the time, which included PIMCO, Davidson Kempner Capital Management and Sixth Street, funded a $750 million exit financing package that fully refinanced the debtor-in-possession loan and provided additionally liquidity.

The company also obtained a $125 million FILO facility led by Pathlight, which refinanced its debt and enhanced liquidity. Furthermore, several lenders, including Bank of America, have extended a $900 million asset-based lending facility.

Making the deal happen

M. Klein & Co. is serving as the lead financial advisor and capital markets advisor to HBC on the acquisition of Neiman Marcus Group and related financings, along with Solomon Partners. Elm Street Advisors is serving as strategic, commercial and operational advisor, Deloitte is working as financial and tax advisor, while Willkie Farr & Gallagher LLP is serving as legal counsel.

J.P. Morgan and Lazard are providing financial advice to NMG. Sullivan & Cromwell LLP is representing the firm as legal counsel, while Berenson & Co. acted as financial advisor to Insight Partners.