Business & Finance Club - New York : Children's clothing maker Gymboree Corp (GYMB.O) is selling itself to buyout firm Bain Capital Partners for $1.8 billion, it said on Monday, as cheap valuations and clean balance sheets make specialty apparel companies attractive takeover targets.

Bain beat other private equity bidders such as Apollo Global Management APOLO.UL, which also had been pursuing the firm, two sources familiar with the situation said on Monday.

The deal values Gymboree at $65.40 in cash and includes a "go-shop" period of 40 days until November 20 when the company can solicit rival bids.

Shares closed at $64.83 on Nasdaq, indicating the market is not anticipating a higher bid for the company.

About one third of the deal value is made up of equity and the remainder debt, one of the sources familiar with the situation told Reuters.

Private equity deal flow has increased in recent months, as financing markets have rebounded. Some buyout funds are under pressure to spend money before their investment periods end and concerns about potential tax hikes rise.

CRAZY 8

Many observers are expecting Crazy 8, a cheaper, funkier line of children's wear, to spur growth the company.

Gymboree has topped earnings estimates for the past six quarters, helped by the popularity of its "Gymbucks" program, where customers spending above a certain limit receive coupons, which they can then redeem on later purchases.

"The timing (for Gymboree) is prudent just because it allows them more flexibility to ramp up the growth of Crazy 8," said Betty Chen, who covers specialty apparel companies at Wedbush Securities.

"If companies have a growth vehicle, (going private) presents a great opportunity to grow it in private, incubate it, gain some traction and then take it out again in two or three years' time," Chen said.

Analysts think deal could fuel more takeovers in specialty apparel, with three analysts naming Children's Place Retail Stores Inc (PLCE.O) as a possible candidate. Children's Place, which hit a new year-high Monday, closed up 2 percent on Nasdaq, while rival Carter's Inc (CRI.N) ended the day up 3 percent on the New York Stock Exchange.

"Specialty apparel companies usually have a lot of cash flow and the brand equity is also something that is quite difficult to start from scratch ... if you buy a strong brand like Gymboree, that is compelling," Chen said.