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NEW YORK — PVH Corp. is on the acquisition hunt again, this time sooner than expected.
The $5.89 billion apparel giant is following the same pattern it used after its Calvin Klein acquisition before going on to buy Tommy Hilfiger: pay down the debt quickly, complete the integration process and then see what’s out there that can move the needle.
PVH completed the $435 million cash deal for Calvin Klein in 2003, and paid down the debt in two-and-a half years. The $3 billion Hilfiger deal was completed in 2010, and PVH, which took on $2 billion of new debt, quickly delevered by paying down $450 million in 2010 and another $300 million in 2011.
Chairman and chief executive officer Emanuel Chirico, who spoke Tuesday at a Barclays Capital Retail and Restaurants Conference, said the company is “significantly ahead from a debt paydown point of view, significantly ahead from an earnings point of view on the Tommy transaction. The integration is complete and we’re starting to really take a hard look at what the acquisition landscape looks like.”
While Chirico said the company doesn’t need to do an acquisition for the next three to five years to meet growth targets, doing one would be “accretive” on top of those projections. Options under consideration include taking back a category or region on Calvin Klein or Hilfiger or buying “another lifestyle brand” that the firm can add licensing to, whether using its North American or its European platforms.
In the Calvin transaction, Chirico admitted at the 2011 Fairchild Men’s Wear Industry CEO Summit that the company broke its own M&A rules, particularly given the high purchase price and high leverage. Yet Calvin “significantly exceeded” PVH’s financial expectations and became a business with more than $6.6 billion in global retail sales. PVH learned from that experience that great brands are expensive, and it can be OK to pay a huge premium provided one is buying a truly great brand, Chirico said.
In the case of Hilfiger, PVH was attracted to the international operational infrastructure. In both the Calvin and Hilfiger deals, private equity firm Apax Partners was brought in as an investor. After the Calvin deal, Apax had a 38 percent ownership stake in PVH, which was bought out early. Following the Hilfiger purchase, Apax took a 12 percent shareholding in PVH. Given the $1.2 billion remaining on the debt load from Tommy, it seems that Apax could still be a shareholder in PVH.
While PVH has done “bolt-on” deals in the past, such as when it acquired the Izod brand, the firm now seems more focused on transformational acquisitions, of which Calvin and Tommy are examples. PVH also might be feeling pressure to do another transformational acquisition given VF Corp.’s $2 billion cash deal last year to acquire The Timberland Co., which tranformed VF into an even bigger apparel powerhouse with $10 billion in annual revenues.
Chirico also said at the Barclays presentation that PVH will develop shop-in-shop concepts for fall in J.C. Penney for five or six major brands, including 600 doors for the Izod brand. Izod is inhabiting most of the space vacated by the American Living label that was developed by Ralph Lauren Corp.’s Global Brand Concepts. The ceo said, “We are contributing to a capital build out that’s in excess of $10 million this year — 50 percent us, 50 percent Penney’s — to grow those Izod shops to really be flagship shops.”