Financial services giant American Express (NYSE:AXP), which publishes Travel & Leisure magazine, recently announced a partnership with airport retailer Hudson Group to open T&L stores in North American airports including Vancouver (the first location opened June 18), New York, Halifax, Orlando and San Francisco. Despite a significant decline in air travel during this recession, airport retail is doing remarkably well, far better than traditional retail. As it happens, private equity firm Advent International owns 47% of Swiss-based travel retailer Dufry AG, which trades on the Swiss Stock Exchange. Advent first bought into Dufry in 2004, buying the entire company in 2005. On September 28, 2008, it merged its operations with North American travel retailer Hudson Group (see above), creating a global player. Advent loves retail.
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Probably its best-known retail investment is Lululemon (Nasdaq:LULU), the Canadian-based yoga lifestyle store. Its current ownership stands at 6.3%, down significantly from 38.1% immediately prior to its IPO in August 2007. Advent paid approximately $74.4 million in December, 2005 for its interest in the company and recouped its original investment plus $82.8 million in profits thanks to the IPO. Today, Advent holds 4,418,790 shares, selling another 11,010,211 over the last two years, generating an absolute minimum profit of $44 million. While still holding a significant stake in the retailer, it's already made 170% on its investment in less than five years at a time when retail couldn't be doing worse. Private equity firms usually move on by now but they'd be crazy to do so considering Lululemon's future potential.
This past December, Tweeter Home Entertainment closed its doors for good after being in Chapter 11 for the second time in two years. Unable to compete with Best Buy (NYSE:BBY), Wal-Mart (NYSE:WMT) and others, it finally ran out of steam, leaving many employees unpaid. Fortunately, the two hundred or so institutional investors Advent manages money for were unaffected as it sold its remaining shares (241,288) between February 7, 2000 and Jan. 27, 2000. The best guess is that Advent made an initial investment in Tweeter of $5.7 million, generating profits of $20 million over a four-year period. That's almost a 400% return. Going back a little further, Advent helped finance PCs Compleat, a direct mail computer retailer bought by CompUSA in 1996. Without delving into the financial gains on this one, it's safe to say they were outstanding. Other investments include Dollar Express, sold to Dollar Tree (Nasdaq:DLTR) and Kirkland's (Nasdaq:KIRK), a Tennessee-based gift and accessories store, with management that bought Advent's 30% stake in September, 2008.
The Bottom Line
All told, Advent made approximately 32 investments in retail businesses around the world. Many of its current investments are private businesses that may go public soon enough, presenting future IPO opportunities for regular investors. Unfortunately, unless we belong to one of the pension funds it manages money for; we're shut out of the real moneymaking investments. That's a shame indeed. (To learn more, check out Institutional Investors And Fundamentals: What's The Link?)