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J Brand Thinks Big Under Fast Retailing

The Japanese fashion giant’s expertise will prove useful as the brand bulks up its business in the Asia-Pacific Rim.

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Good brands continue to find buyers willing to open their wallets wide in the M&A world.

J Brand is the latest to set a high yardstick for brands to measure themselves against, with Japanese fashion giant Fast Retailing Co. Ltd. paying $290 million, plus $10 million in advisory fees, for 80.1 percent of the growing denim-cum-sportswear brand.

That values the company at $362 million — or about eight to 10 times projected earnings before interest, taxes, depreciation and amortization. The price tag was broadly seen as healthy and proved to be high enough to turn off some interested private equity suitors.

Jeff Rudes will continue to lead J Brand as chief executive officer and retains an ownership position. The deal is expected to close by the end of the year.

This is step two for Rudes, who founded the company in 2005 and sold a controlling stake five years later to Star Avenue Capital, a collaboration of Irving Place Capital and talent agency CAA. Under Star Avenue, the company began to reach beyond its denim roots and position itself as a fashion brand with a sportswear collection.

The brand has also been garnering attention for its hip collaborations with designers such as Christopher Kane and Proenza Schouler.

Now J Brand will view the world through the lens of Fast Retailing, which also owns Uniqlo, Theory and Helmut Lang.

“The global outreach, retail models, products.…I am very impressed by what they do,” Rudes told WWD of his future partners at Fast Retailing. “We really respect the business as well as some of the opportunities that we thought we could build, together, for J Brand.”

In the short term, Rudes pointed to building the brand’s ready-to-wear business domestically and abroad, as well as the men’s wear rtw component, for which J Brand is putting together a design team. Freestanding stores are another area of opportunity. The company will likely cut the ribbon on a Los Angeles flagship next year and add doors in other fashion capitals while expanding the product line with handbags and shoes. “Things that will work within the sensibility of building our fashion brand,” Rudes said.

Fast Retailing’s expertise will prove useful as J Brand bulks up its business in the Asia-Pacific Rim. “We have a good business [there] but really feel we can excel there with a partner like Fast Retailing,” Rudes said.
Fast Retailing will also get the benefit of Rudes’ expertise in denim.

“As a good partner, our resources are available,” Rudes said. “And being that we have different price points, it would not conflict or hurt either to be able to share certain resources.”

Andrew Rosen, group senior vice president at Fast Retailing as well as co-founder and ceo of Theory, called J Brand’s potential “limitless.

“We have obviously a big initiative and investment in the contemporary space, and believe that J Brand gives us another important player in that space, and also a unique perspective,” Rosen said. “We see the opportunity on a global, multichannel basis as enormous. The beauty of J Brand is how they really have built this incredible business, for the most part, in a domestic market in the single channel.

“The other thing is that they have a base in L.A.,” he added. “It gives the group an opportunity to have an important presence on the West Coast.”

J Brand sells in more than 2,000 stores in more than 20 countries. Its profits totaled $17.8 million in 2011, compared with a loss of $200,000 a year earlier, according to Fast Retailing’s reckoning of the brand’s recent financial results. Sales jumped 38.4 percent to $124.4 million from $89.9 million.

Although Fast Retailing has made other acquisitions, the deal was welcomed as a sign that a broader pool of buyers was forming.

A decade ago, hot brands would be acquired and built up in the U.S. by the likes of Liz Claiborne Inc., Jones Apparel Group or Kellwood Co. — all of which have either changed their names or ownership. Fast Retailing along with perhaps Compagnie Financière Richemont, PPR and LVMH Moët Hennessy Louis Vuitton are part of a different breed with a more global eye.

“For [Fast Retailing], an international retailer, to step up and play in this format I think is really exciting from a private equity and an industry perspective because there’s another avenue of funding that’s available,” said Jeff Streader, operating partner at Marlin Equity Partners. “It’s a competitive [deal] landscape, but there are very few big strategics in the industry that have the ability to pull levers like this.”

Kim Vernon, president and ceo of consultancy Vernon Co., said J Brand was a good catch with “very clean distribution” and compared the transaction with Richemont’s September deal to acquire golf-inspired brand Peter Millar.

“These types of large strategic companies really do have the pockets and the interest to pay good money for great brands,” Vernon said.

There are a host of deep-pocketed investors, including Star Avenue and Irving Place Capital, that look to buy promising brands, strengthen or professionalize the businesses and then either take them public or send them on to another investor for the next leg of their growth.

“It was bittersweet for us because it’s such a good company,” said John Howard, ceo of Irving Place Capital.
And although the deal marks a payday for Howard, through Star Avenue, it will also be a blow to his wardrobe.

“My other regret is that I lose my [J Brand] discount,” Howard said.

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