How many opportunities for deals are left in the contemporary space?
With Parker off the market now that it’s been sold to Kellwood and backed by private equity firm Sun Capital Partners, there’s not a whole lot of good, quality contemporary firms left, according to The Sage Group’s Janki Lalani Gandhi, whose firm represented Parker in the transaction.
Private equity firms have been saying for the better part of a year that there aren’t many good brands available for sale. While the overall mergers and acquisitions landscape is still fairly healthy — there’s activity in accessories, specialty retail, footwear and beauty — there’s a paucity of opportunities in the contemporary space. RELATED STORY: Kellwood Buys Parker Brand >>
“The more sizable, well-known brands were sold in the last few years, leaving fewer opportunities right now to actually invest in and acquire contemporary brands,” Lalani Gandhi said. The smaller brands that are in the category still need to grow further to establish themselves as brands before they can attract considerable investment activity, she explained.
That explains the interest in international brands, such as The Kooples and Zadig & Voltaire, as observers watch how they’re growing and what those trajectories are like.
With the reduction in activity for deals in contemporary, that also explains the growing interest in emerging brands — many of which are still early-stage start-ups that have generated media interest sometimes due to participation in incubator programs. Many also get early attention from venture capitalists, who are looking for investment opportunities.
“It used to be that brands can start out with a few hundred thousand from friends and family or other angel investors, but social and digital media is playing a bigger role and that now requires more capital from the get-go for the marketing and advertising spend. It’s become a more competitive landscape and many young companies are now starting out by bringing in a partner from the beginning,” the banker said.
Another factor impacting the M&A market has to do with fund-raising activity. As private equity firms have the ability to raise more money and therefore have larger fund sizes, they also end up needing to put more money to work. “That means bigger deals so they can’t do the smaller deals that they used to do,” she said.
According to the banker, that means we may see more examples of what Berkshire Partners did in joining forces with Glen Senk to form Front Row Partners — offshoot vehicles aimed at doing smaller deals.
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