Brian Sozzi Talks 99 Cents Only Deal

Brian Sozzi of Wall Street Strategies is out with a research report on the deal to take 99 Cents Only Stores NDN private this morning, at a price of $22 per share. In the note, Sozzi writes, "From the start, we have stated that the original $19.09 per share purchase price put forth by Leonard Green was too low given NDN's attractive store economics (sales per square foot; operating margins) and the potential for a future rollout of the California only chain to other parts of the country. Combining NDN's attractive store operating metrics and a technologically improved logistics system following years of plowing in capital with a sponsor's balance sheet that could take the model into new towns is the secret sauce for a winning private equity investment upon cashing out down the line." Sozzi believes that both Ares Capital Management and the Canadian pension plan will be helpful partners in expanding 99 Cents Only Stores. He does not think the parties involved, including Ares, the pension fund, and the Schiffer/Gold family will take the company public anytime soon, as KKR did with Dollar General DG. He believes this is much longer term story than simply cleaning the company up, and selling it back to the public. He concluded the report by saying, "It was a long overdue outcome for NDN, a company that boasts a very attractive dollar store model (variable product pricing plus the highest sales per square foot in the sector) but has never truly been viewed on par with Family Dollar (FDO), Dollar Tree (DLTR), and Dollar General (DG) due to its lack of a broad geographic footprint. In addition to the deal being overdue, it comes at an opportunistic time in NDN's lifecycle as it invests in infrastructure to support square footage growth outside of its core California market, and at an opportunistic price by the most interested parties." At last check, shares of NDN were up 91 cents to $21.40.