By and  on October 8, 2007

NEW YORK — The financing markets may be taking both an earlier and longer-than-expected vacation, but the end result might be a healthier mergers and acquisitions environment.

That was one of the conclusions among panelists at a private equity roundtable recently hosted by Financo Inc. at the Harmonie Club here. The panel was moderated by William S. Susman, president and chief operating officer of Financo. Panelists included David Kim, partner in the Retail and Consumer Group of Apax Partners; Benjamin A. Hochberg, principal at Lee Equity Partners; James M. Dworkin, managing director at GB Merchant Partners; Alan H. Mentle, partner at SPG Partners, and Andrew Megibow, operating partner at SPG.

Kim sees the M&A sector as a "mixed bag," due to current economic pressures portending a possible recession. Recent economic conditions have caused a resetting of public stock valuations, which he says is good because it means the leveraged multiples we've seen should be at more normalized levels from prices two to three years ago.

"That's great for us, but I don't know if sellers of the highest-quality companies are going to reset their prices. It may take some time," Kim said.

Dworkin said that, because of the types of investments GB Merchant Partners typically focuses on, the current environment is "ideal for us, because this could be a buyers' market and many [competitors] won't go to a troubled or flat [sales-growth] retailer, which is what interests us, as we can jump right in and not have to worry so much about comp sales."

For Hochberg, deals can still get done since the "market is open," but buyers are becoming selective. He said there's investment cash still out there to be put to use, and there are plenty of buyers willing to do deals at the "right price."

To be sure, even if the price is right, it's still only part of the equation. Buyers for fashion-related firms also have to look at production and design as well as consider the existing management team.

According to Megibow, "Designers are a prerequisite to success. The market is beginning to value creative design accordingly." He said that, while the truly great designers understand both the business and the bottom line, it is also imperative to find good management teams.Megibow noted that gaining importance is speed-to-market. "Speed-to-market is absolutely critical, but not at the expense of product....[While] product is number one, [the ability to have] speed without altering the product is also critical."

So far, there are not many foreign investors coming into the U.S. market buying at possibly "perceived" better values due to the declining dollar. Kim believes the reason may be due to noneconomic forces at work. He noted difficulties that U.S. companies have had in trying to expand in Europe. "People see those experiences and [are] cautious on doing it in reverse. It's one compelling reason they're slow to jump in," he concluded.

At a separate Financo-sponsored conference, "Shopping for Investment Ideas," a panel of entrepreneurs dished about how to differentiate a brand in order to attract investment dollars. The panel included: Dr. Gregory Brown, founder of ReVive; Chris Lee, senior vice president of Forever 21; Ian Murray and Shep Murray, co-founders and co-chief executive officers of Vineyard Vines, and Glenn Rothman, ceo and founder of Hearts on Fire.

Although what is important for each brand can vary and include authenticity, integrity, an emotive customer experience and speed-to-market capabilities, all of the panelists agreed the "right product" is essential. "We want to make good products for great people, items that are exclusive yet attainable," Shep Murray said.

It is the right fit, the right price and newness that create loyal customers who will return to a store season after season.

Even at fast-fashion retailer Forever 21, Lee said he finds that, if its customers can get the same merchandise at other places, they still continue to choose Forever 21 because they know they will find trend-right items at value prices.

Growth is vital for private brands, but it is essential not to expand so fast that the company culture and identity are lost in the process.

"We are focused on making sure our lifestyle is conveyed appropriately," said Shep Murray. "We want to make this thing big, but we want to grow responsibly and deliver the best customer service possible."

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