Fashion Retailer’s Equity Arrangement Tailor Made

Financing: Owners of Planet Blue retain larger stake with debt transaction.


Source: LA Business Journal
By: James Rufus Koren

April 22, 2013


Santa Monica retailer and fashion brand Planet Blue needed cash to buy more inventory, redo its website and attract more online customers.

But when founder Ling-Su Chinn and her husband, Chief Executive James Williams, went to private equity groups for money, they were told they’d have to give up at least 30 percent of their company in exchange for less than $10 million.

Not wanting to hand over that much control, they opted for a smaller hybrid debt-and-equity arrangement with Santa Monica’s Breakwater Management LLC. In a deal that closed last week, Breakwater will invest up to $6 million, some of it in the form of a loan, in exchange for up to 10 percent of Planet Blue. Breakwater’s valuation was slightly higher than that of other potential investors.

“It is a tradeoff,” Williams said. “The downside of debt is you have to pay it back. But the upside is it preserves more equity for the company.”

That kind of deal is a specialty for Breakwater, said Saif Mansour, founder and managing partner. The company typically structures investments with a combination of equity investment and debt, allowing it to pick off deals from private equity firms that want more of a company than owners are willing to give.

“We preserve ownership in the original owners’ hands,” Mansour said. “We look for businesses that need a cost-effective solution to grow, but they don’t want to sell too much of the company away. They believe the company can have another turn or two of growth before an exit.”

That was the case for Planet Blue, a company Williams said could command a much larger valuation in a few years if its growth initiatives are successful. Along with expanding sales online, the company is opening stores in Japan and ramping up production of private-label apparel sold through Saks Fifth Avenue and other retailers.

“At our stage, our valuation is nowhere near where it can be,” Williams said. “Rather than getting more money upfront and giving away more control, our goal was to work with a partner who could be more flexible.”

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