Victoria’s Secret sold to US private equity firm

The owner of Victoria’s Secret, L Brands, agreed on Thursday to sell 55% of the lingerie company to Sycamore Partners, in turn giving the private equity firm full control of the company and turning it into a privately held company.

The deal values Victoria’s Secret at $1.1 billion which reflects years of falling sales as consumer trends have shifted towards online shopping, comfort and inclusivity-focused brands.

The company has also had reputational problems resulting from accusations of employee sexual misconduct and L Brands’ CEO admitting having close ties to convicted sex offender Jeffrey Epstein.

Marketing boss Ed Razek left the company in 2018 after making comments that trans models should not be cast in the Victoria’s Secret annual show “because the show is a fantasy” although the brand subsequently hired its first openly transgender model.

Such controversies could explain why Victoria’s Secret is so keen to escape the scrutiny that being listed on a public market involves.

What is a private equity firm and why would it want to buy Victoria’s Secret?

Private equity (PE) is the equity in an asset that isn’t freely tradeable on the public stock market. A PE firm like Sycamore Partners, is the controlling partner in a collection of partnerships that have come together to pool their capital and invest in a particular opportunity (such as the purchase of Victoria’s Secret).

PE firms sometimes buy established companies if they believe that they have the ability and expertise to take an underperforming business like Victoria’s Secret and turn it into a stronger one by increasing operational efficiencies and thus increasing earnings.

PE firms also create value by aiming to align the interests of company management with those of the firm and its investors. By taking public companies private, PE firms remove the constant public scrutiny of quarterly earnings and reporting requirements, which then allows the PE firm and the acquired firm’s management to take a longer-term approach in improving the company’s finances.

What does this mean for Sycamore Partners and Victoria’s Secret?

Private equity firm Sycamore Partners has recently been buying troubled bricks-and-mortar chains like The Limited, Hot Topic, Nine West and Staples, selling off their most valuable parts and cutting costs at whatever is left over. This seems to be working as Sycamore Partners’ first fund made an annual post-fee return of 43%

Sycamore Partners said that they believe there is significant opportunity to reinvigorate growth and improve the profitability of Victoria’s Secret. This is likely due to strong global brand awareness meaning there is potential for Victoria’s Secret to revamp their product line to emphasise comfort and functionality over ‘sex appeal’ which could boost sales.

It is currently unclear what changes that Sycamore Partners will make, but a change in Victoria’s Secret’s brand image and strategy could bring store closings (and therefore redundancies), celebrity endorsements and/or brand spinoffs.

What does this mean for L Brand?

L Brands will now be left with just Bath and Body Works in its portfolio. L Brands said in a statement that the sale will unlock Bath and Body Works’ profitability and deliver more value for L Brands shareholders. L Brands said it will use the proceeds from the sale to reduce debt.

L Brand’s CEO will retire and take on the title of chairman emeritus of the board.

Article by Camilla Uppal, LLB Law graduate from University of Kent