Most Recent Articles In Financial
Latest Financial Articles
- April is Kind to Gold — Not Stocks
- Shares of Amazon Rise 10%, Lift Consumer Stocks
- Esprit 9-Month Revenue Slides 10%
More Articles By
Shares of Sequential Brands Group surged 17.3 percent after the company said it plans to acquire Galaxy Brand Holdings for $260.3 million.
This story first appeared in the June 26, 2014 issue of WWD. Subscribe Today.
More importantly, the transaction adds The Carlyle Group as a significant shareholder in the company, as well as grants it one seat on Sequential’s board.
The deal, expected to close by yearend provided certain closing conditions are met, comprises $100 million in cash and 13.75 million shares of Sequential common stock, as well as certain performance-based warrants.
Galaxy owns fitness brand Avia, basketball apparel brand And1, footwear brand Nevados and home goods brand Linens-N-Things. The brands under Sequential’s umbrella include Ellen Tracy, Revo, Caribbean Joe, William Rast and Heelys. The combined entity will give Sequential 12 global consumer brands.
Private equity firm The Carlyle Group is the majority owner of Galaxy. Upon the deal’s closing, Carlyle’s managing director Rodney Cohen will join Sequential’s board. Carlyle joins private equity firm Tengram Capital, of which its cofounder William Sweedler is Sequential’s chairman, and investment firm BlackRock as significant shareholders of Sequential.
Yehuda Shmidman, Sequential’s chief executive officer, said, “This acquisition is a game changer for Sequential in many ways. First, we expect it to double the scale of our brand portfolio to nearly $2 billion in global retail sales, which puts us well on our way towards achieving our recently stated three-year plan of growing to $3.5 billion in global retail sales. Second, this acquisition further diversifies Sequential into new retail distribution with new licensees and new product categories.”
The senior management team at Galaxy, including ceo Eddie Esses, will become employees of Sequential.
Shmidman joined Sequential in November 2012, and at the time the plan was for Sequential to acquire the IP assets of two dozen brands over the next five years.
At a March consumer and retail conference held by Bank of America Merrill Lynch, company executives said its brands had had substantial growth in two years, rising to $1 billion in global retail sales from $100 million, and growing its royalty revenues to a projected $28 million to $30 million this year from $5.3 million in 2012. Its three-year goal through 2017 — mostly through focusing on acquisitions that are immediately accretive — was to have a portfolio of 12 to 14 brands, global retail sales at $3.5 billion, $100 million in royalty revenues and $70 million in adjusted earnings before interest, taxes, depreciation and amortization.
The Galaxy acquisition jump-starts that three-year plan, with Sequential now projecting — on a post-closing basis — forward 12-month royalty revenues of between $56 million to $60 million and $36 million to $40 million of adjusted EBITDA from the combined brands under its umbrella, as well as $2 billion in global retail sales from its 12 brands.
Brean Capital’s Eric Beder raised his share price target for Sequential to $15 from $10. Beder noted, “One big deal achieves the company’s revenue goals for 2014” and that the Galaxy brands offer organic growth opportunities via expansion of the licensing program.
When Carlyle acquired its stake in Galaxy, the investment mandate supposedly was to buy more brands. The sale of Galaxy suggests the possibility that the investment thesis has shifted.
David Stonehill, managing director at Carlyle, disputes that: “This is a great strategic fit. We look forward to supporting Sequential, which has the same growth and acquisition strategy that first attracted us to Galaxy.”
Indeed, sources familiar with the transaction said the deal more likely than not represents an acceleration of the acquisition mind-set, only this time with executives from Sequential and Galaxy combining forces.
The addition of Carlyle also raises the stakes, these individuals concluded, making Sequential a more formidable player competing head-to-head on bigger deals typically targeted by Iconix Brand Group and Authentic Brands Group.
After the deal for Galaxy closes, Sequential likely becomes the third-largest brand management firm in the U.S., after Iconix and Authentic Brands Group.
The deal also gives Sequential some heavyweights on the financing side. It has committed financing from Bank of America and The Blackstone Group, through its affiliate GSO Capital Partners LP for its Galaxy acquisition.
Shares of Sequential closed at $13.68 in Nasdaq trading on Wednesday.