Discount retailer Five Below eyes IPO -sources

March 20 Wed Mar 21, 2012 12:04pm EDT

March 20 (Reuters) - Discount chain store operator Five Below, which is owned by private equity firms Advent International and LLR Partners, is in talks with bankers about an initial public offering, according to two sources familiar with the situation.

The Philadelphia-based company has hired at least part of its underwriting team, according to one of the sources, but the names of the banks could not be confirmed.

Five Below generates earnings before interest, taxes, depreciation and amortization of $45 million to $50 million, the second source said, and is growing quickly.

Five Below would likely be compared against other discount stores when it markets its IPO, said the source. These companies, like Dollar General and Dollar Tree, are both trading at over 20 times forward earnings.

If valued against this multiple, Five Below could command a market valuation of over $1 billion.

Five Below could not be reached for comment. LLR Partners and Advent International both declined comment.

Advent has a history of investing in deep-discount stores including Dollar Express, which is now owned by Dollar Tree, and European retailer Poundland, owned by Warburg Pincus.

Founded in 2002 by David Schlessinger, the founder of retail bookstore chain Encore Books and former Zany Brainy CEO Tom Vellios, Five Below sells merchandise between $1 and $5 that is targeted for teens and young adults. The company operates nearly 200 stores throughout the U.S. and is planning to add 50 more this year.

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Comments (1)
ypdmb34 wrote:
The potential valuation discussed above is a little unclear. While the peers are trading at P/E multiples of 20x (or close to), they are valued at roughly 8-10x forward EBITDA. So the above-disclosed amounts imply EV of say $500m but there’s no clear link to the $1bn valuation – can’t apply P/E multiple to EBITDA and find market value.

Mar 22, 2012 12:39pm EDT  --  Report as abuse
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