By and  on March 11, 2005

NEW YORK — Seven For All Mankind has a new financial partner, Bear Stearns Merchant Banking, people familiar with the deal said.

Seven, still largely a women’s denim line, was part of L’Koral Inc., a Los Angeles-based private label knitwear firm headed by Peter Koral. In a recapitalization of the Seven business that closed within the week, Bear Stearns Merchant Banking is now a 50 percent partner in the business and Koral is chairman of the new company, the people close to the agreement said. The amount of the stake was not immediately known.

Bear Stearns Merchant Banking is the private equity arm of investment firm Bear, Stearns & Co. Neither executives at the merchant banking group nor Koral could be reached for comment.

A financier familiar with Seven’s business said wholesale sales in 2004 were $200 million. Seven has a small but growing men’s business and a Seven tops line that is about to be launched.

“Seven is an incredibly great franchise,’’ an investment banker said. “It also has an international business that is nascent, but growing quickly.”

The banker, who spoke on condition of anonymity, said Seven has huge potential for growth as well as expansion into the nondenim apparel categories. “Seven is what it is because it looks better and fits better [than the competition]. Seven has changed the perception…of premium-price denim,” he said.

Seven was formed in 2000 by Jerome Dahan and Michael Glasser. They approached Koral for financing. Dahan was the designer of the line, and Glasser was head of sales.

People in the investment community familiar with the Seven-Koral arrangement said that the parties agreed to operate Seven under L’Koral’s umbrella until the Seven business reached a certain level in annual volume, after which Seven might become a separate entity from L’Koral. That separation never happened.

Dahan and Glasser left the company in 2002 and started the denim brand Citizens of Humanity. Glasser in September 2004 sold his 39 percent stake in the Citizen’s business to Dahan.

The founders became embroiled in a dispute with Koral over the partnership, and a lawsuit was filed in December 2002 in Los Angeles Superior Court. A judge in September 2004 ruled that Dahan and Glasser were entitled to $50 million for their 50 percent stake in Seven, and that they also should receive $5.5 million in profits for 2001 and 2002.Bear Stearns’ recapitalization deal followed a settlement Koral paid in January, ending a two-year court battle with his former partners.

Koral had been shopping Seven for several months, trying to decide whether to sell the business outright or find another financial partner to grow the brand, people in the financial community said. Buxbaum Group, Koral’s financial adviser, was said to have been trying to sell the line to bigger conglomerates such as Liz Claiborne Inc. and Jones Apparel Group.

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