The contemporary sector, which was on a hot streak for several years before the recession hit and has been rebuilding, is bustling with mergers and acquisitions activity. Catherine Malandrino is rumored to be negotiating with Kellwood Co., while Andrew Rosen is talking with Proenza Schouler. In the past year or so, Steve Madden Ltd. purchased Betsey Johnson, while Kellwood added Rebecca Taylor and Adam to its contemporary stable, which already includes Vince. VF Corp. has purchased Ella Moss and Splendid; The Jones Group Inc. added Robert Rodriguez and Rachel Roy to its lineup, while Tory Burch took on Mexican investors. Rosen, chief executive officer of Theory Link Holdings, made private investments in firms such as Alice + Olivia, Gryphon and Rag & Bone.
“We continue to see activity levels picking up,” said Paul Altman, managing director of The Sage Group, an investment firm in Los Angeles. Among the deals Sage has done are selling Vince and Rebecca Taylor to Kellwood, and selling a significant stake in Velvet to Snow Phipps. “The category is definitely in favor. People value the brands,” said Altman.
As these brands benefit from larger corporate parents and more financing, other firms mull whether to also seek a buyer or go it alone in the increasingly competitive sector. Industry executives pointed out the three main reasons firms decide to sell their businesses are that they reach a point where they want to start opening retail stores, they want to expand their product offerings and they seek to develop a larger international business. All of these require capital, resources and manpower. A well-financed owner also allows firms more opportunities for marketing and advertising. And there’s typically a pretty sizable payout to the brand’s founders over time as well. Of course, the downsides can be giving up ownership and control and, in some cases, losing rights to one’s name and leaving the company they founded altogether.
Firms such as Nanette Lepore, Milly and Tibi — all of which are husband-and-wife run businesses — have chosen to remain independent, which they say allows them to grow at their own pace and call the shots. But the interest from strategic and private equity investors is at a fever pitch.
“They’re definitely swarming around right now,” said Amy Smilovic, designer and founder of Tibi, discussing private equity and strategic investors. She said the way she recently put it to an investor is, “You sell out for tons of money and then have to report in to someone. The designer lingers on for three years and then disappears, and you have to give up three years of your life.”
Smilovic doesn’t see the appeal of selling right now. “If we’re profitable and making money and employees are well-paid, and nobody’s going insane, it’s a good life,” said Smilovic, who is in business with her husband, Frank, the company’s president. The business does about $30 million in wholesale volume. She said she would only consider selling to a company if they offered a competency that Tibi doesn’t have.
Smilovic pointed out that it’s a significant commitment even to consider a strategic investor.
“The due diligence is huge. You have to feel like you’re exhausted from your current responsibilities, which we’re not. For me, what I would love in a partner [or private equity investor] is someone who could support building the brand from a marketing perspective and funding the opening of new stores,” she said.
Tibi has a 3,000-square-foot store on Wooster Street in Manhattan and an outlet store in Sea Island, Ga. The company, which has repositioned itself from a printed summer dress firm to a diversified sportswear brand, also launched an e-commerce site in September. “It was a huge expense with an amazing payoff,” said Smilovic. Some 40 percent of Tibi’s business is done overseas through its wholesale channel.
Nanette Lepore was approached to sell her business a few years ago, and after lengthy negotiations, walked away from the deal.
“We came close to a deal, and we’re glad we didn’t do it,” said Robert Savage, ceo of the brand, which does around $140 million in wholesale volume. “Both partners are. We were going to roll out a bunch of retail stores…but when I heard that Bear Stearns was sold for $2 [a share], we both began to backpedal.
“I’m happy where we’re at right now. We own the company 100 percent,” said Savage, who is in business with his wife, Nanette Lepore.
He said growth can be a good and a bad thing. “We grew our business slowly. We learned so much. Mistakes were made early on when we were really small,” said Savage.
Savage said the company has as many retail stores as it desires right now. The 11 stores span the country, from New York’s Madison Avenue to Los Angeles’ South Robertson Boulevard, as well as a licensed store in Tokyo. “We’re comfortable where we’re at. Retail stores have started to come back a bit and there was an uptick in spring sales. During the recession, the stores cut back,” he said. In some cases, some stores cut back 20 percent of their buys. “I don’t feel we need to do anything right now until the economy kicks back in. I feel more and more comfortable where I’m at every day. Having partners is not easy,” said Savage.
Privately owned Milly has been in business for 10 years, and isn’t looking to cash out yet. “When our business started in 2000, we had a nice start. The first few years it was breakeven and from there forward, the business was profitable,” said Andrew Oshrin, president and partner in Milly. Oshrin is in business with his wife, Michelle Smith. “We’ve always been in a position where the business was well capitalized,” he said. Oshrin said when a brand sells out to a strategic investor or private equity firm, it has the responsibility of performing and following a strategy, and the new owners are trying to grow the business faster. “As a privately owned company, we can make decisions that are right for the long term,” he said. Milly has been approached the last four or five years by strategic investors, as well as investment banks, but it has not needed the capital.
Milly launched handbags in-house, as well as costume jewelry, which was introduced at retail in January but hasn’t been as successful, he said. The company added children’s wear this year with Mini Milly, which, Oshrin said, “got great support from retailers.” Milly created an e-commerce site in April 2010, which was its first retail store, and came within $11,000 of its sales plan. “Next year it should grow 70 to 80 percent,” he said.
In 2008, Milly’s business generated between $46 million and $47 million in wholesale revenues. The volume slipped to the low $40 million range, and this year will pick up again, he said. Milly opened its first flagship, an 1,800-square-foot unit, in May at 900 Madison Avenue, between 72nd and 73rd Streets. “We’ve done this all internally through operations,” said Oshrin, noting that he and Smith have put their earnings back into the business.
While these brands prefer to remain independent, the likes of Rebecca Taylor, Adam and Vince are pleased they sold their businesses to Kellwood, which has enabled them to expand their retail network and launch new categories.
“Being part of a large organization allows us to benefit from shared resources,” said Beth Bugdaycay, ceo of Rebecca Taylor, citing areas such as human resources; accounting; legal; IT, and customer service. Rebecca Taylor, which was sold to Kellwood in January, expected to be fully integrated by this past June. The company generates between $35 million and $40 million in wholesale volume. “These are functions we did previously, and now there’s an obvious benefit to the bottom line. There are real benefits with efficiencies of time management. Our leaders can concentrate on sales, merchandising, new opportunities and public relations,” she said. “We felt the timing was right to find a strategic partner. We had two objectives: to expand the product we’re offering and to have an accelerated retail rollout. We felt we could get there on our own, but at a much slower pace. We felt it could be faster with a partner.”
Rebecca Taylor presently has three directly owned stores — two in Manhattan in the Meatpacking District and NoLIta neighborhood, and one in Hong Kong, as well as two stores with a licensing partner in Japan.
Bugdaycay felt the timing was right to invest in retail stores “but only had so much cash flow and liquidity.
“We opened two stores with a $1 million investment for each store. If you’re an independent, it’s hard to roll them out at a fast clip,” she said.
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