A Leveraged Buyout Of Bed Bath & Beyond Unlikely To Bail Out Investors

Some investors have been bullish on Bed Bath & Beyond Inc. BBBY being a prime target for a leveraged buyout. However, the company’s LBO at a meaningful premium to the current levels “would not be attractive to a financial sponsor,” Loop Capital Markets’ Anthony Chukumba said in a report.

Chukumba maintains a Sell rating on Bed Bath & Beyond, with a price target of $35, commenting that there was low possibility of an LBO significantly limiting the downside risk to the stock.

LBO Unlikely And Unattractive

• U.S. LBO Financing Market: This has been “mixed at best,” and the LBO backdrop is unlikely to improve in 2017, Chukumba mentioned. Interest rates are expected to increase throughout the year, which would further dampen the LBO financing market.
• U.S. Retail LBO Activity: This has slowed significantly over the last few years, mainly due to “the lingering memory of bankruptcy filings that resulted from LBOs by some of the most experienced and well respected private equity investors in the industry,” the analyst commented.
• Attractive? Bed Bath & Beyond is not as attractive of an LBO candidate as several investors seems to believe, given the company's contracting profit margins and deteriorating free cash flows as well as the stiffening competition in the online space, Chukumba said.
• LBO Price: The analyst estimated the price at $55 per share, which represents “anemic returns.”