TPG and Warburg join hands for New Look bid


US buyout houses TPG Capital and Warburg Pincus have emerged as the front runners in the battle for UK fashion retailer New Look after hiring Citigroup, which advised the company’s management when it was first taken private three years ago.

Citigroup advised New Look management when private equity firms Apax Partners and Permira paid £700m for the company in 2004. The bank won a mandate the following year alongside Royal Bank of Scotland and HSBC to refinance £200m for the women’s fashion retailer.

According to a source close to the bidding consortium, the two firms have joined together to bid for the fashion retailer with Morgan Stanley also said to be advising on the deal. Given Citigroup's history with the discount fashion retailer the source said the consortium was in a strong bidding position.

Merrill Lynch has been hired by New Look’s owners to run a limited auction after dropping its plans the float the company this year. Bids for the low-cost fashion chain are expected to reach the £2bn (€2.9bn) mark.

The investment banks Morgan Stanley and Citigroup are understood to be advising the Texas Pacific/Warburg Pincus consortium, two groups which have worked together on retail deals in the past. In May 2005, they teamed up to buy the US retailer Neiman Marcus in a $5.1bn (£2.6bn) deal.

Sales at New Look, which is run by chief executive Phil Wrigley, a former finance director, are understood to have reached more than £1bn in the year to March 2007, an 18pc increase on the previous year. The new figures show a recovery at New Look since last year, when sales were hit by poor weather and a lack of strong fashions.

Profits at New Look, which has expanded into menswear and childrenswear, rose from £174m to about £180m, Current trading is reported to be strong.

Like other fashion retailers, New Look has seen strong trading because its younger customers are less affected by interest rate rises.

According to sources familiar with the situation, the US buy-out group Blackstone and CVC Capital Partners, one of Europe's largest private equity firms, are still interested in New Look.

But it is unclear whether Cinven, KKR and Landmark Group, the Dubai-based company that has retail operations in the Middle East and India and which runs New Look's franchises operations in the region, plan to table an offer for New Look, having expressed initial interest.

Mahesh Jagtiani, chief executive of Landmark, already owns 3pc of the retailer, while Tom Singh, who founded the business in 1969, also retains a stake.