It's no secret that I'm not a fan of the private equity game, and when it comes to specialty retail, the PE crowd hasn't fared well. Perhaps the biggest failure of all-time is one that's been covered vastly here in these virtual pages, the downfall of Toys "R" Us brought on by Bain Capital Partners, KKR and Vornado Realty Trust. But they're hardly alone. Something that I discussed a little bit when I was a recent guest on the Power Kid Podcast is that my first big exposure to the world of private equity came when one of my former employers, the late Musicland Group, was purchased by Sun Capital Partners. On the surface, these companies could be a "savior" to retailers facing challenges of changing times and tastes. More often than not, they manage to squeeze these troubled companies for whatever they can, extracting funds from them and leaving them for dead, killing jobs and leaving the landscape further dotted with the empty shells of dead retail. One of the biggest problems is that private equity only cares about money - because that's their business. These people don't care about anything else, and if they tell you different, frankly, they're lying. It's a smoke and mirrors act because these companies don't create or build anything other than wealth for a relatively small group of people... and they do it on the backs of people who are actually doing real work in the real world - not an imaginary one rooted in spreadsheets and bank accounts. One player named in the rumors is Sycamore Partners, who currently holds Hot Topic and Torrid. For those keeping score, three years ago, Hot Topic tried buying ThinkGeek, and they almost did... but ultimately it was GameStop that acquired the company. Sycamore Partners was also interested in the Bon-Ton Company and Toys "R" Us in recent months, neither of which panned out. Additionally, they were behind last year's big leverage buyout of Staples, but their Nine West company just went bankrupt - so results are varied.
After rumors became widespread and lead to a boost in the stock price over the past day or so, today GameStop issued the following statement:
"GameStop Corp. (NYSE:GME), today confirmed it is in exploratory discussions with third parties regarding a potential transaction. There can be no assurance any agreement will result from these discussions. GameStop does not intend to make any additional comments regarding these discussions unless and until it is appropriate to do so."
The rumor was that a takeover offer prompted the company to pursue other potential buyers, and it may have all been prompted by last month's urging of Tiger Management (a hedge fund) to launch a review of their business and implement a turnaround plan.
I'm sure there's people out there with ideas on how to turn GameStop around, and they have to address the most obvious problem - that the core business of gaming software has made the jump from physical to digital. But a turnaround can happen, and I actually have a plan that could work for them... though I'm not just giving that away by outlining it here. If GameStop wants my turnaround plan (and I'm 100% serious), they'd have to hire me to put it into action. They've had some issues in keeping CEOs for the past couple of years, so maybe it's time to go for the true wildcard - they can hire The Rock Father™ and turn the whole thing around in a way that will make customers, investors and employees happy. I'm not joking.
GameStop is a profitable company that brought in over $9 billion in revenue in 2017. This is a company with a lot of life left in it. Let's just hope they don't let the wrong vampires suck it dry.