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Ellen Tracy and Caribbean Joe have been sold again.
Brand management firm Sequential Brands Group has acquired the intellectual property rights to the two brands from Brand Matter for $62.3 million in cash and 2.8 million in the common stock of Sequential.
The total value of the transaction is about $81.9 million. The stock component of the deal is valued at $19.6 million, based on the closing price of Sequential’s stock at $7 a share on March 26, a share-price amount that also represents the trading range for the better part of March. Sequential has acquired three brands in the last four months. The third, Heelys, was acquired in December for $63.2 million.
The latest two acquisitions complete Sequential’s basic platform of six core brands that together comprise more than 50 licensees; a run rate close to $1 billion in retail sales worldwide, and between $23 million and $25 million in royalty revenues. The brands operate at a 50 percent earnings before interest, taxes, depreciation and amortization margin. The other brands in Sequential’s portfolio are William Rast, People’s Liberation and DVS Action Sports.
Sequential in January closed on a private placement that netted the firm $22.4 million in net proceeds. Following the close of the latest acquisition, and after accounting for related transaction costs and expenses, Sequential will have $15 million in cash on its balance sheet.
Like Sequential, Brand Matter was a brand management firm. Both have a connection to William Sweedler, an investor in both as well as cofounder of Tengram Capital Partners, a consumer private equity firm. With the exception of Sweedler, the shareholders in both Sequential, a public entity, and Brand Matter, a privately held firm, belong to different investor groups.
Ownership in Brand Matter was based on a consortium of more than 50 investors, of which Sweedler, on an equity basis, was a minority shareholder. His personal investment vehicle, Windsong Brands LLC, and Hilco Consumer Capital were the two investors that led the management team at Brand Matters.
Under their stewardship, Brand Matter’s operations included owning the IP of Ellen Tracy and Caribbean Joe and acting as licensing agent for Carlos Falchi, Cloudveil and Field and Stream. With the sale of the IP assets, Brand Matter effectively ceases to exist as an entity. The sale is essentially an exit strategy for Brand Matter’s investors, although it is believed that many will elect Sequential stock and become investors in the public firm. All Brand Matter staff will become Sequential employees. Rick Platt, former president of Brand Matter, becomes group president, brand management at Sequential, reporting to Sequential chief executive officer Yehuda Shmidman.
According to Sweedler, it made sense for the two brands to become part of Sequential’s umbrella.
He said the brand-management model, which relies in part on the acquisition of a set number of brands, works better using the public markets. “You have capital access that’s critical to the growth of this type of enterprise. Firms that are well connected in the public markets have many different tools, whether equity, debt or a combination thereof, in which to access or raise quickly versus the privately held firms,” Sweedler explained.
Of the two brands, Ellen Tracy is the bigger revenue producing one, and it has a strategic alliance with Macy’s Inc. that features a complete collection of better sportswear focused on modern, related separates. Price points are about two-thirds less expensive than the former Ellen Tracy bridge line previously sold in department stores. Jackets retail from $99 to $149, and pants from $50 to $99. The brand recently began international distribution.
Caribbean Joe is an island-inspired lifestyle brand with more than 10,000 retail points of distribution.
The two brands are estimated to generate between $12 million and $14 million in royalty revenues over the next 12 months.
Shmidman said, “This is a really strong base. Now we have both critical mass and a robust platform with a great pool of lifestyle brand licensees.”
Some of the licensees for the Ellen Tracy brand include LF USA for sportswear; G-III Apparel Group Ltd. for outerwear and dresses; Komar for intimates; Sole Creations for slippers; ClearVision Optical for optical and sunglasses, and Palm Beach Beauté for fragrances. Caribbean Joe licensees include the Moret Group for women’s and girls sportswear; Bernette Textile Co. for men’s and boys’ sportswear; Another Line for belts; NYAG for handbags and sun and skin care, and Starlight Accessories for sunglasses.
According to Shmidman, “The game plan is to continue to acquire lifestyle global consumer brands now that we have the team, the base brands, great partnerships and licensees.”
Shmidman’s criteria are brands that are lifestyle in nature and have the ability to add product categories and channel diversity for geographic growth. Even better is when they are “trapped in underperforming operating companies,” he added.