M&A Opportunities for Apparel Companies With a Niche Brand, Financiers Say

Source: California Apparel News
By: Deborah Belgum, Senior Editor

June 20, 2013

The secret to selling an apparel label is to have a niche business that no one has developed. Copycat brands don’t have a chance.

“We focus on brands that have resonance that can sell in any market,” said Jeff Chang, a director with Lion Capital, a British consumer-focused investment firm with offices in London and Los Angeles. It has invested in John Varvatos, All Saints, Jimmy Choo and American Apparel.

Chang was speaking at a mergers-and-acquisitions panel on June 13 organized by Los Angeles–based Intrepid Investment Bankers, a 3-year-old mergers and acquisitions and corporate finance advisory firm focused on the middle market.

Also speaking were Saif Mansour, founder and managing partner of Breakwater Management, which specializes in direct investments in the small- to lower-middle market growth areas, and Andy Solomon, chief operating officer of Sole Society, an online shoe club spun off from Nordstrom’s online site HauteLook (www.hautelook.com).

Deal volume by private-equity firms has been down 17 percent this year compared with last year because there were so many transactions done at the end of 2012, said Brien Rowe, head of Intrepid’s consumer-products group and the panel’s moderator.

But most retail, fashion and apparel stocks currently are trading at 90 percent to 95 percent of their 52-week highs. “There is great valuations in these companies and speaks to more investment and acquisition activity to come,” Rowe said.

Even though there are funds searching for investment opportunities, many of the panel members thought it was harder for e-commerce sites to find financing than 18 months ago. “With the exception of Nasty Gal, e-commerce financing has become difficult,” said Sole Society’s Solomon. “Unless you are showing real growth with a real business model and show real promise of profitability, it is hard to raise the money that was around 18 months ago.”

Solomon said his company benefited from its beginnings within HauteLook. “We were incubated with HauteLook, and then Nordstrom came along and bought HauteLook,” he said. Sole Society became an independent entity after Nordstrom acquired the flash-sale e-tailer.

Several of the panelists noted there is a trend for brands that started out as online companies, such as eyewear company Warby Parker, to expand into bricks-and-mortar stores. “There was a lot of [investment] activity that happened over the last couple of years with money focused on online brands, and they soon realized they needed to get beyond that,” said Lion Capital’s Chang.

Private-equity companies such as Lion Capital and Breakwater look for promising companies in which to invest. But once an investment is made, they help bring in a new management team to handle rapid growth.

When Lion Capital acquired John Varvatos Enterprises, it hired Cristiano Quieti as the new chief executive. He had been chief executive at Diesel USA. John Varvatos, however, remains the chairman and chief creative director. When Lion Capital invested in U.K.–based retailer All Saints, it hired William Kim as the new chief executive. Previously, Kim had worked as a senior vice president at Burberry.

Mansour said his company also brings on a new management team to help grow the companies in which it has financial interests. “We try to bring strong financial operating controls,” said the Breakwater founder, who has invested in Southern California retail chain Planet Blue. “A lot of companies are successful, but they are disorganized in operating and finance. Those are things that a private-equity firm will want to add.”

To learn more about Breakwater, visit www.breakwaterfunds.com or call (424) 777-4000.