Luke Mulks - QCN
Note from Luke: Please stick with me to the end of this one. There might be a little back and forth between the big and little picture, from the quilt market to the stock market. It’s my goal to break it all down so no one gets lost, and so the largest amount of people can see why I’m feeling so good about this bit of quilt/financial news.
This is the headline that got the keys in motion:
Jo-Ann Stores being purchased by Leonard Green & Partners Affiliate for about $1.6 billion
This type of headline might normally be a bit of boring news for quilters, or a mere blip in the busy financial news cycle. As I read through the article (and did a little research in parallel of the players involved), my laptop was the only thing keeping me from jumping through the ceiling (in joy).
Why this purchase is a blessing? This purchase shows that the quilting and sewing industries are not just 'survivors' of the Great Recession, they're proven 'winners'.
The overall long term picture is a good one for the quilting and sewing markets. Those at the top (Investment Bankers), are in my guess about as detached from 'hands-on' action of quilting (and the quilting industry) as it gets. The quilt industry has some companies that are publicly traded, but not so many that they demand a lot of regular attention. These Investment Bankers are composed of spreadsheet and analysis gurus, and this purchase shows that they are making long term investments (projecting their certainty) in the future success and growth of the quilting industry.
Why? Well, let's look at the nature of the deal.
Before the deal officially takes effect later in 2011, Jo-Ann Fabrics will remain as a publicly traded company, and part of the New York Stock Exchange (NYSE). In August 1995, Jo-Ann’s decided they were large enough to swim with the big fish of the NYSE. They went public, and private shareholders sold their stock with the Initial Public Offering (IPO) to get a big return on their investment. Anyone with a mouse and the internet could now go online and purchase a piece of the Jo-Ann’s Fabrics pie.
Through the Great Recession, (Fall 2008-Fall 2010), JoAnn’s stock (NYSE Symbol: JAS) has been on a solid upward stride.
RESULT = JAS stock has increased +290% throughout this Great Recession = Pretty damn impressive.
With this deal, the private investment firm Leonard Green & Partners LP agreed to pay public shareholders of Jo-Ann Fabrics’ stock a total of $1.6 billion in cash to buy them out of their shares. This move will change the status of Jo-Ann Fabrics from a publicly traded company to a privately held company. Ownership of the privately held company is limited to a private group of investors, and no one else.
This frees up a lot of the decision making process, allowing for faster and more controlled private growth. Since the privately-held Jo-Ann’s will no longer have to answer to the public investors, they can quietly and quickly build and re-tool the business to fit the needs and direction of the private investors. These investors will grow the company to, once again, go public on the NYSE.
Think of it as a private <--- -to- ------------> public investment tide, with ownership going in and out from private to public hands as the company grows.
On the other hand, they might just keep JoAnn's privately held for quite some time. As popular as the NYSE is, there is an ever-growing private investment market that has been getting more and more attention and popularity as of late. LGP might just keep raising more and more funds by keeping it all private. Either way, they make out well.
Fed Chief Ben Bernanke went on a public relations tour over the last quarter, concluding that one of the biggest obstacles holding up the economic recovery is uncertainty in the business community over economic policies - aka, tax cuts. We all saw the political fight on the news. I’m not even going to touch that.
Now the tax question is settled until 2012, business has certainty and clarity in the rules of the game. Firms like LGP are long term players in that game. This newfound certainty means that it's time for firms like LGP to start picking winners, and backing them with investment for the Great Recovery.
The deal to buy Jo-Ann's is part of a long term approach by LGP to purchase winning retailers for their team. Over the last 3 months, they've bought J. Crew Group, Inc., invested in Neiman Marcus, David's Bridal, Whole Foods Market, and Sports Authority. They're picking their winning team, and are backed by some of the biggest and oldest banks in the industry to supply additional funding.
Well, this move is great for JoAnn's, but why should the rest of us be happy about it? We should all smile, because these big purchases typically happen at the end of recessions, right before the economy rebounds. That's why the purchase is such a good sign. The elders have decided to dust off the stacks of cash, and get back on the field. This is huge.
Another important point to mention is that JoAnn’s isn’t a manufacturer, they’re a retailer. Love or hate the Wal-Mart effect that JoAnn’s has had on the small shops in quilting and sewing market, the fact remains that they sell a lot of most things that a lot of quilters purchase nationwide. Buying JoAnn’s, in a way, is like purchasing faith in the entire quilting and sewing industry. Investors have seen an industry not only survive, but grow in spite of some of the bleakest economic conditions in recent history.
From my perch in the world, this deal is hugely symbolic. Quilting has been chosen as a certain winner by those who know winners, and it looks like there is a very, very bright future ahead. (..insert smile here..)
So, don’t worry…be happy! Keep quilting, surfing online and give yourself a pat on the back at some point for supporting your industry into the win column.