Boxers and bras may be next on the shopping list for private-equity buyers with Hanesbrands Inc. offering one of the cheapest valuations in the retail industry.

The underwear maker’s $6.2 billion market value is 12 times its free cash flow from the past year, lower than all but two similar-sized U.S. apparel companies, according to data compiled by Bloomberg. While Warren Buffett’s Berkshire Hathaway Inc. has 43 percent of the U.S. industry through brands including Fruit of the Loom, suitors would get a second-place share of 19 percent by buying Hanes, data compiled by IBISWorld Inc. show.

“Berkshire Hathaway has bought all the competitive businesses that look like Hanes,” said John Schneider, a fund manager at Waltham, Massachusetts-based Granahan Investment Management Inc., which oversees about $3 billion including Hanes shares. “There’s a template there for a private-equity guy to come in and take a hard look at Hanes.”

After Winston-Salem, North Carolina-based Hanes rallied 74 percent this year, private-equity suitors may be inclined to pounce before the price tag gets too high, FBR & Co. said. The seller of Wonderbra lingerie and Champion sweatpants that agreed to buy Maidenform Brands Inc. last month could fetch as much as $78 a share in a sale, a 25 percent premium, according to Channing Capital Management LLC.

Matt Hall, a spokesman for Hanes, didn’t respond to phone calls or an e-mail seeking comment. (For more coverage on Hanes, see "Hanes Buys Maidenform for $575M.")

Michael Jordan

Hanes, which has featured basketball star Michael Jordan and actor Kevin Bacon in commercials, was spun off from Sara Lee Corp. in 2006. The company will have $4.6 billion in sales in 2013, the highest annual total since the split, according to the average of analysts’ estimates compiled by Bloomberg.

Since announcing it plans to buy Maidenform for about $575 million including debt on July 24, Hanes has risen 17 percent, trouncing the Standard & Poor’s 500 Index’s 0.3 percent advance.

Even after the rally, it still trades at a cheaper multiple to free cash flow than 89 percent of U.S. apparel, footwear and accessories-design companies valued at more than $1 billion, data compiled by Bloomberg show. Hanes posted free cash flow of $516 million during the past year.

In midday trading on Aug. 9, shares of Hanes are down slightly to $61.75.

Given peers’ higher valuations and Hanes’s opportunities, the company’s multiple could rise, Susan Anderson, an Arlington, Virginia-based analyst at FBR, said in a phone interview. “If anyone is looking at it, they would look now.”

‘Solid, Steady’

Private-equity suitors could be attracted to Hanes’s free cash flow and falling debt, according to Schneider of Granahan.

The company’s total debt, which exceeded $2 billion as recently as the middle of last year, has dropped to $1.6 billion. Analysts see Hanes producing $442 million of free cash flow in 2014, according to the average of estimates compiled by Bloomberg. The underwear maker is funding its acquisition of Maidenform with cash and short-term borrowings that will be repaid with free cash flow.

“It’s a very good, solid, steady business, and if you get the cost structure right, from a cash-flow perspective, it’s absolutely tremendous,” Schneider said in a phone interview. While Hanes may seek to buy more companies, “there’s probably some pretty good private-equity economics to be gained.”

Buyout firms would be following Buffett into underwear. Berkshire purchased Hanes competitor Fruit of the Loom Ltd. a decade ago and picked up Russell Corp. in 2006. Berkshire has 43 percent of the $529 million U.S. apparel knitting mills industry, which includes makers of underwear and nightwear, compared with 19 percent at Hanes and 16 percent at American Apparel Inc., according to a December report from IBISWorld.

Foreign Bidders

In addition to private-equity firms, an international retailer looking for U.S. expansion also could bid, said Eric Beder, a New York-based analyst at Brean Capital LLC. He declined to name any potential buyers.

Hanes could be valued at as much as $78 a share in a sale, according to Eric McKissack, co-chief investment officer of Chicago-based Channing Capital Management. The shares closed at $62.39 yesterday.

Hanes management may want to keep expanding independently and could demand a premium that’s higher than buyers are willing to pay, said Eric Tracy of Janney Montgomery Scott LLC.

“There is a lot of opportunity on a standalone basis,” Tracy, the Washington-based managing director of equity research for the footwear and apparel industries, said in a phone interview.

Hanes meets many of the financial criteria that private- equity firms typically seek and still offers a bargain price, according to McKissack.

“The appeal is the steady cash flow generation potential,” McKissack, whose firm oversees about $1.3 billion including Hanes shares, said in a phone interview. “Although the valuation has increased with improved performance, it’s still not a high valuation.”

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