When Michael Kramer walked into Scotch & Soda’s first U.S. store in Manhattan’s SoHo neighborhood, he was blown away. “I had a coronary. I was ‘Oh my God, the product is amazing,’” said Kramer, president and chief executive officer of Kellwood Co. “I called them and they weren’t for sale, but I just kept banging on their door,” he said. After six months of negotiations, an affiliate of Sun Capital Partners and Kellwood reached a deal Monday to acquire the Amsterdam-based fashion brand.
“They are true designers that keep innovating,” said Kramer, noting the deal is expected to close next month. Terms of the private transaction weren’t disclosed, and the Scotch & Soda founders and management team will continue in their respective roles. Kramer said Scotch & Soda’s business generates wholesale volume of 250 million euros, or $350 million at current exchange, and represents Kellwood’s biggest and first international acquisition. “It’s huge and it’s hugely profitable,” Kramer said.
Begun as a men’s wear label, Scotch & Soda has expanded to include a women’s collection called Maison Scotch, a boys’ collection called Scotch Shrunk, a girls’ collection called Scotch R’Belle, and its most recent venture, Amsterdams Blauw, a high-profile denim collection.
Kramer described the product as having a “cool, hip vibe.” Having previously worked at Abercrombie & Fitch and Apple, Kramer said, “I didn’t think I’d find a brand I loved as much as those, and I found it.”
“Scotch & Soda is one of the coolest, most sought after brands today, and I couldn’t be more excited to have them partner with the Kellwood team,” said Kramer, who has been actively building a stable of contemporary brands as he changes the complexion of Kellwood. After acquiring Vince in 2006, Kellwood bought Adam and Rebecca Taylor within the past year. Since acquiring these contemporary brands, Kellwood has helped them expand their retail network, update their Web presence, pursue additional categories and expand internationally. Kramer said Kellwood is still negotiating to acquire Catherine Malandrino, as reported, and is close to three other deals, as well. “We plan to look at more international brands,” he added.
Kramer has often said that his acquisition strategy targets firms with annual volume between $200 million and $300 million, as well as smaller firms that have strong growth prospects in the $100 million-plus range. Kellwood’s other brands include BLK DNM (designed by Johan Lindeberg), Baby Phat, Phat Farm, Sag Harbor, Briggs, as well as licensed brands XOXO and David Meister.
Discussing the appeal of Scotch & Soda, Kramer said: “I think there’s a lot of brand fatigue out there. In the contemporary market, if you’re a teenager, or if you’re twentysomething or thirtysomething, it’s all the same brands out there. I’ve always been on the lookout for brands which speak to that customer and have a strong DNA and great design.”
Kramer said he hopes to use Kellwood’s retail and e-commerce expertise to help Scotch & Soda build their brand internationally. Scotch & Soda is distributed throughout Europe, and is just now starting to grow outside of Europe, particularly in the U.S. and China. The company has experienced more than 40 percent increases a year. “They knew at some point they’d outgrow their capabilities,” he said. Scotch & Soda currently has more than 30 of its own stores worldwide and more than 7,000 other points-of-sale. It also has an online presence with a Web store, blog and social media strategy. Its only U.S. store is located at 273 Lafayette Street in SoHo.
In a recent interview, Kramer gave his strategy for acquiring contemporary brands, and said that he’s not just looking to acquire brands, but to acquire creative talent.
“I just won’t buy a brand for the founder to cash out and go do something else,” said Kramer. “We usually have an earn-out period where the proceeds of their business are paid over three years or five years. I want them long-term,” he said. He said another incentive is: “They can take some of their personal wealth off the table and still run the company as if it’s their own.”
Sun Capital Partners, a private equity firm, acquired then-public Kellwood in February 2008 for $762 million. The game plan is for Kellwood to reach a point where it would go public again.
Atlas Advisors acted as lead financial advisor to Scotch & Soda, along with Marvin Traub Associates acting as strategic advisor, with additional financial advice from Boer & Croon. Allen & Overy served as legal advisors.
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