Deb Shops has signed a definitive agreement for private equity firm Lee Equity Partners to acquire the fashion retailer in an all-cash transaction worth US$395m.

Lee will make the purchase through its affiliate DSI Holdings, which is looking to buy 100% of the outstanding shares of Deb Shops for $27.25 per share of common stock.

Subject to customary regulatory requirements and shareholder approval, the transaction is expected to close in the third fiscal quarter of 2007.

Marvin Rounick, president and CEO of Deb Shops, said: "We are excited about entering into a transaction with Lee Equity. We believe this transaction is in the best interests of all shareholders. Tom Lee is one of the icons of the private equity business, and we believe the fact that his organisation chose to acquire our company is a real testament to the business that the people of Deb Shops have built.

"We have had many wonderful accomplishments during our long and successful history and this transaction serves as an important step in the growth of our business. We are pleased that Lee Equity has expressed a commitment to continue to build and grow Deb Shops' business."

Under Lee Equity's ownership, it is expected that Allen Questrom, who has over 40 years of retail apparel experience, will serve as non-executive chairman of the company. Further to this, Rounick and Warren Weiner, the company's current executive vice president, have entered into agreements whereby they have agreed to provide consulting services to the company for a period of three years after the closing of the acquisition.

Questrom, senior advisor of Lee Equity Partners, said: "In a very competitive junior apparel segment, Deb Shops is differentiated by its fashionable, value-oriented merchandise and strong positioning with junior regular and plus-size customers. We look forward to growing the company's already strong customer base and continuing to roll out its plus-size merchandise offering. The company's demonstrated strength in its markets is a testament to the quality of the franchise that the current leadership has built.

"We believe that with our firm's involvement, Deb Shops can maintain and grow its wonderful relationship with its customers, while presenting a renewed, more exciting offering in the years to come. I'm looking forward to working with the Deb team."

Deb Shops' board of directors has approved the proposed merger, and Lee Equity has obtained commitments for the offer from Rounick, Weiner and Jack Rounick, who is a director and assistant secretary of Deb Shops - representing an aggregate of approximately 64.3% of the shares of Deb Shops common stock.