Aeropostale Joins Private Equity Merger Hopeful Ranks

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Aeropostale Inc. (NYSE: ARO) surged on Wednesday after reports that the apparel maker has approached at least two private equity firms to see if there is interest in acquiring the company.

Bloomberg first reported the news, but we would caution that the source was the traditional “people familiar with the situation.” This should be treated as rumor, for all practical purposes. Aeropostale’s stock has been stuck for so long that this should not even be surprising.

Where things may be hard to get to in a buyout is that the history for earnings and the reaction has been very choppy. Income has not been consistent enough for a dividend, sales have been flat around the $2.3 billion to $2.4 billion mark for some time, and those sales are expected to fall for this past year and for the coming year. Aeropostale is also expected to lose money for last year and for the coming year.

What happens when apparel companies just cannot grow on their own after some time? They go see if the private equity firms interested in fashion and apparel have any interest in taking them over. Nothing new here!

It is not that a $600-plus million dollar deal is too much for private equity. The issue to consider here is that the company’s metrics are just not good. No earnings, sales stagnation turned to decline, spotty history. Ask yourself if you would want to spend the money to acquire this company.

The real question is whether private equity firms would even field a call from Aeropostale management. Anything is possible in the world of private equity, but it is hard to see. Maybe they should have just called up Eddie Lampert to see if his wisdom could lead to a buyout.