Dive Brief:
- GameStop on Tuesday confirmed that it is in "exploratory discussions with third parties regarding a potential transaction." The statement came after Reuters reported Monday that the gaming retailer was talking with private equity firms about a possible buyout.
- In the statement, the retailer said it could make no assurances that the talks would end in a deal for the company. "GameStop does not intend to make any additional comments regarding these discussions unless and until it is appropriate to do so," the company said.
- According to Reuters, Sycamore Partners — which last year bought and broke up Staples and reportedly engaged Toys R Us in acquisition talks before the toy retailer moved to liquidate — is among the possible suitors for GameStop.
Dive Insight:
The rise of digital commerce has even upset retailers of digital products. Once a stalwart brick-and-mortar video game emporium, the retailer has managed to diversify its business despite the growth of digital distribution and streaming. But it has still struggled to find its footing as the gaming and gadget worlds keep changing.
Analysts have widely differing views on the gaming retailer, which may have less opportunity to diversify after achieving good results from low-hanging fruit. In a holiday period boosted by strong hardware sales, the company's total sales rose more than 10% and same-store sales rose by nearly 12%. But mobile hardware sales missed expectations, and the company said it expected impairment charges of up to $400 million on its Technology Brands business, which sells Apple and AT&T products.
Results for the company's first quarter were worse, with sales and comps falling across much of the company's business lines, earnings falling in half and Technology Brands continuing its deterioration. But executives said that on the whole the quarter fell in line with their expectations.
The retailer has also gone through some leadership turnover. This summer, GameStop appointed Shane Kim, a former Microsoft executive who has served on GameStop's board since 2011, as interim CEO after Michael Mauler left just months after being promoted to the CEO spot. Mauler had replaced J. Paul Raines, who left to undergo treatment for an illness. Raines died in March.
"I am not a candidate to fill the role on a permanent basis," Kim told analysts in June, according to a transcript from Seeking Alpha. "My job during this period is to provide the additional leadership, passion and focus needed to enable our associates to drive the company forward." With that said, Kim for now is leading the company through a choppy market, made so by the rise of streaming video games, and he could be leading GameStop through a private equity buyout.
Sycamore and other firms' reported interest in GameStop, along with Vintage Capital's recent deal for Rent-A-Center, show that private equity has not lost its taste for retail, even after a rash of retailers have gone into Chapter 11 with debt leftover from leveraged buyouts. While there have been some success stories among retailers bought by private equity, among them Burlington and General Dollar, the debt from leveraged buyouts often leaves little room for error in a rapidly evolving retail industry.
