Gymboree on the auction block.

The San Francisco-based retailer has hired Goldman Sachs to begin a formal auction of the company, and big-name buyout firms are already lining up in a sale that's expected to fetch well over $1 billion, sources told The Post.

Billionaire Leon Black's Apollo Management -- whose recent unsolicited approach to Gymboree helped spur the auction that's now under way, according to one source -- is expected to be among the leading bidders.

In a signal that investors are growing more optimistic about consumer spending, a slew of buyout firms including Bain Capital, KKR, Apax Partners and Irving Place Capital have also expressed interest in acquiring the retailer, sources said.

Gymboree's management team, which increased sales and profits through the recession despite the relatively steep prices at the company's 900 mall-based stores, is "frustrated by the company's stock price," according to one source.

Top management including CEO Matt McCauley, a 37-year-old retailing whiz, have lately been scooping up shares as they look to "cash in and get recognition for all the good work they've done," the source noted.

Initial reports last week of a possible sale of Gymboree sent the company's shares soaring as much as 21 percent on Friday. Yesterday, the shares lost $1.62, or 3.3 percent, to close at $48.24 on triple the normal volume.

That's in line with what many observers say would be a fair takeout price for the chain. Nevertheless, people close to the situation said management has initially demanded between $55 and $60 a share, which would give the company a $1.5 billion market cap.

A Gymboree spokesman said, "It's the company's policy not to respond to rumors in the marketplace." A Goldman spokeswoman declined to comment.

Gymboree hired the investment firm last month after it was approached by at least two firms -- one of which was Apollo, sources said.

"Some [private-equity firms] called up and said, 'Hey, we're kind of interested in buying your company,' " according to one source briefed on the matter. Gymboree responded, "What's your number?" according to the source, referring to a proposed acquisition price.

The firm then swiftly hired Goldman to attract more bidders, sources said.

Critics note that a buyout at $60 a share would amount to more than seven times Gymboree's Ebitda -- or earnings before interest, taxes, depreciation and amortization, a key performance metric for investors. With the economy still shaky, that is seen by some as a steep price tag.

"One big question people are asking is, 'What are you going to do with it?' " according to one investment banker, who reckons a deal will be done closer to the $50 level. "You could argue that Gymboree is already so well-managed that there's not really anything to do."

That worry has driven many investors to take short positions in Gymboree's shares. Bullish investors, however, argue the firm's strong supply chain can handle international growth into markets such as Canada, Australia and China.

SOURCE: NY Post by James Covert