5 Berkshire Partners Bidding For Carter S

Topics: Private equity, Corporate finance, Goldman Sachs Pages: 14 (5685 words) Published: April 17, 2015
9-205-058
REV: AUGUST 19, 2011

MALCOLM BAKER
JAMES QUINN

Berrkshire
e Partne
ers: Bid
dding ffor Cartter’s
In the spring of
o 2001, Bostton-based priivate equity firm Berkshiire Partners w was considerring a
levera
aged buyout (LBO) of the William Cartter Co., a lead
ding producerr of infant, baaby, and child
dren’s
apparrel in the Un
nited States. Berkshire
B
Parrtners, which
h had extensiive experiencce investing iin the
retail and manufaccturing sectorrs, was initia
ally drawn to
o Carter’s beccause of the sstrong brand name
ngth of the ssenior
the co
ompany had developed during
d
its 136
6-year history
y, as well ass for the stren
mana
agement team
m. (See Exhibitt 1 for a profille of Berkshirre.)
To
o investigate the
t option off a potential LBO,
L
Berkshirre assembled
d a five-memb
ber team, to b
be led
by managing direectors Ross Jo
ones and Bra
adley Bloom and senior aassociate Mich
hael Ascionee. (See
Exhib
bit 2 for biogrraphical sketcches.) The tea
am would hav
ve less than eeight weeks to
o move throu
ugh all
the stages of a Golldman Sachs--led auction—
—from initial rresearch and due diligencce to valuation and bid sttrategy.
In addition to running the auction and thereby serv
ving as Carterr’s agent, Go
oldman Sachss (GS)
would
d be offering
g “staple-on” financing. Under this arrrangement, th
he winning b
bidder would
d have
the op
ption to finan
nce the deal th
hrough a prep
packaged capiital structure proposed by Goldman Sachs.1

Cartter’s
Ca
arter’s was fo
ounded in 18
865 in Needham, Massach
husetts. Over the course o
of 136 years iin the
highly
y competitivee apparel industry, the company
c
beccame the larrgest branded
d manufacturrer of
toddleer and baby apparel
a
in thee United Statees and also a leading mak
ker of young cchildren’s clothing.
Divid
ding its mark
ket into five segments—la
ayette (i.e., n
newborn), baaby sleepweaar, baby play
ywear,
young
g children’s sleepwear,
s
an
nd young chilldren’s playw
wear—the com
mpany sough
ht to outfit chiildren
for the first six yea
ars of life, “fro
om birth to bu
us.”
In the early 199
90s, the company found itsself struggling
g. Owned at the time by in
nsurance com
mpany
Mutu
ual Benefit Liffe and Wesray
y Capital Corrp., Carter’s h
had developeed unprofitab
ble product lin
nes in
swimwear and un
nderwear, and
d many of itss more decoraative featuress (zippers, cu
ut bows, etc.) were
not well
w received by
b consumerss. In 1992, thee company insstalled a new
w managemen
nt team led by
y CEO
Fredeerick J. Rowa
an, with the intention of “steering it back to its ccore niche off soft, comfortable 1 Morg
gan Stanley had recently
r
made a similar offering to the eventual b
buyer of Dresserr Equipment Gro
oup—underwritiing $1.1

billion in debt financing after leading th
he auction. Whiile staple-on finaancing was not a typical practice,, it was becomin ng more
commo
on.
_______
_______________
_______________
________________
___________________________________________________________________ Professo
or Malcolm Baker and
a Research Assocciate James Quinn, Global Research G
Group, prepared thiis case. HBS cases aare developed soleely as the basis forr class discussion. Cases are not inteended to serve as endorsements, e
sou
urces of primary daata, or illustrationss of effective or ineeffective management.
Copyrig
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hbsp.harvard.edu. No part of this pub
blication
m or by any mean
may be reproduced, stored in a retrieval sysstem, used in a sp preadsheet, or transsmitted in any form
ns—electronic, mecchanical,
photoco
opying, recording, or
o otherwise—with
hout the permission...
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