NEW YORK--When dress and sportswear vendor Chorus Line first eyed a $26.5 million private placement, the company was seeking to retire long-term debt and acquire the equity interests owned by majority shareholders Merrill Lynch Interfunding Inc. and Ira J. Hechler & Associates. Today, five months after the completion of the transaction, Barry Sacks, chairman and chief executive officer of the Vernon, Calif.-based manufacturer, is contemplating an initial public stock offering. Sacks also is projecting 1994 sales will hit $200 million--a 12.4 percent gain over sales of $178 million in 1993, and a 52 percent surge over 1992 sales of $132 million. An IPO, often an exit scenario for private investors, is about two years away. "We definitely have in our minds, when the market is right, to pursue an IPO," Sacks told WWD. "I'd guess it's 18 months to two years down the road." As reported, prior to the placement, Merrill Lynch had held a 45 percent stake in Chorus Line, and Hechler, a New York investor group, had held 13 percent. Now, Sacks owns 100 percent of the company. The debt stemmed from the firm's leveraged buyout in 1987, when its annual sales were only $50 million. The successful execution of the LBO was one of several qualities making Chorus Line an attractive private investment, noted Douglas Burke, a vice president at Sutro & Co.'s Los Angeles-based investment banking division, who worked on the February placement. The private capital consists of a $15 million senior term note and an $11.5 million senior secured subordinated note with warrants, both funded by Internationale Nederlander (U.S.) Capital Corp. The notes are due in 2001. "If you can deal with one lender, it's a lot simpler," noted Sacks. "The fewer people you report to and the fewer sets of covenants, the better." Among other things that made Chorus Line a strong private-placement candidate, said Burke, were an annual sales-growth rate of 16 percent between 1986 and 1993; a diversified customer base and distribution network; a strong middle-management team to head its divisions; investments in technology such as computer-aided design and Electronic Data Interchange systems, and dominance in the junior market. "Chorus Line dominates juniors....It gives it a foothold to leverage against," Burke observed. Reviewing the key elements of Chorus Line's private-placement effort, Sacks cautioned, "Anyone who seeks private funds should be advised by professional investment bankers. Some lose sight of this. We had five other parties who were willing to do this deal."
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