LONDON — With COVID-19 ripping up the retail landscape and leaving a trail of shattered companies — with more damage to come — it doesn’t appear to be an ideal moment for deal-making or long-term commitments.
But that’s just what many smaller investors are doing right now, taking advantage of the liquidity in the markets and historically low interest rates to grasp what they see as rich opportunities. These investors also see the crises brought on by the coronavirus as a chance to flex their strategic muscles and to prove that their investment models — and the brands they own and advise — work in good, as well as bad, times.
Deals are happening despite the lockdown: Vaultier7 veered from its usual strategy of supporting early-stage businesses to participate in a multimillion-dollar fund-raising round in Vestiaire Collective, while Gordon Brothers sold off the restructured streetwear brand Bench and a few weeks later bought the distressed Laura Ashley. Meanwhile, small strategic investors are eager to add to their portfolios and invest in start-ups or early-stage consumer businesses.
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Their sense of optimism and hope is almost surreal at a time like this, although these investors are also fully alive to the pandemic, its challenges and consequences. As they hunt for fresh investments, they’re raising extra funds and scribbling checks to help the brands in their portfolios power through the crisis.
“Our arms are wide open,” said Stephen Murphy, executive chairman of Authentic Bespoke, the boutique investment firm specializing in small, artisan luxury brands with revenues of less than 5 million pounds.
Authentic Bespoke’s portfolio includes the historic Budd Shirtmakers, which has a shop on Piccadilly, and leather accessories labels Ally Capellino and Tusting. When brands join Authentic Bespoke, the founder-owners gain shares in the larger group and are encouraged to cooperate and leverage their expertise across the portfolio, while the brands take advantage of shared services.
Murphy said the group has cash on hand and no debt, so there is room to bring two more brands on board. He and his business partners are picking up discussions that started earlier this year with dozens of brands, arguing that like-minded, artisanal companies can flourish as part of a larger platform, especially in tough times like this when social distancing measures and onerous rents could well decimate retailers in Britain.
“Together, we are stronger,” he said.
Murphy, much like other investors in luxury, retail and consumer goods, believes a new phase of consolidation could emerge as the industry takes stock after the crisis.
The partners in another strategic boutique investment firm, A Brand Lives Tomorrow, are similarly bullish. ABLT invests in and advises early-stage, digitally led consumer brands. Its investments include the natural skin-care collection Haeckels; luxury sports brand Alps & Meters; Unmade, an operating platform that enables fashion and sportswear firms to develop, customize and produce items based on demand, and the lifestyle label Caravana, which offers clothing and accessories handmade in Mexico by artisans using traditional techniques.
“There is a massive opportunity, and we are chomping at the bit to do more,” said William Hutchings, a cofounder and partner at ABLT.
Hutchings works alongside partners Zach Duane, the former chief executive officer of Victoria Beckham Ltd. who helped to sell that company to Neo Investment Partners at a valuation of 100 million pounds, and Christopher Suarez, a serial entrepreneur who cofounded Nicholas Kirkwood and as ceo led the sale of the brand to LVMH Moët Hennessy Louis Vuitton seven years ago. Suarez also cofounded Sophia Webster and the sustainable apparel and lifestyle brand Ssōne.
ABLT specializes in brands with revenues less than 5 million pounds and looks to build them to a point where they become attractive to venture capital, private equity, or trade investors. The partners believe past experiences working with early-stage brands makes them ideal partners for start-ups looking to grow sustainably.
They write “small” checks — up to 500,000 pounds — and work closely with the founder-entrepreneurs, urging them to keep an eagle eye on cash flow and consumer sentiment; setting out quarterly targets to hit, and helping them make urgent decisions at times such as this.
Duane said because ABLT works so closely with its brands, “we are very prepared to deal with an emergency situation” like the coronavirus. He pointed out that Haeckels opened its first London shop two weeks before lockdown, then had to close it, while six months before COVID-19 hit, Haeckels lost some of its inventory due to other, unforeseeable circumstances.
“We feel prepared for this moment,” said Duane. “We’re scrappy, agile and dynamic.”
As Duane and his partners guide ABLT’s businesses through the pandemic — advising them on how to benefit from emergency government funding; ensuring they have enough liquidity to ride out the storm, and preparing them for post-lockdown growth — they are also looking to bring more young businesses on board. The plan is to invest in three more brands in 2021 and the partners are in active discussions with those potential targets now.
They’re not the only small investors who see this moment as an opportunity to shine.
“I’m busier than I’ve ever been in my career,” said Ramez Toubassy, president of brands for Gordon Brothers, the Boston-based global advisory, restructuring and investment firm.
In April, in the space of a few weeks, Gordon Bros. sold the British streetwear company Bench to its Manchester-based licensee, Apparel Brands Ltd., and purchased the distressed British heritage brand Laura Ashley from its U.K. administrators.
“We are really passionate about saving, helping and radically restructuring iconic brands, and we think this is our moment to deploy our capital, and our skills, to the broadest effect. There’s a lot of excitement at Gordon Bros. to help companies in this tough time. There’s also a huge need right now on the part of companies for financing. In a way, we’ve been preparing a long time for this moment,” Toubassy said.
Gordon Bros. acquires brands or lends money to them and gives them access to its global network to help them facilitate a turnaround. The company is also able to take a long view on its investments. “We have the luxury of being privately owned, and we don’t have particular pressure to exit an investment,” he said.
Another investor, Vaultier7, takes early-stage stakes in small, entrepreneur-led consumer businesses, although they write much bigger checks than Authentic Bespoke and ABLT. Their portfolio includes the sneaker brand Axel Arigato and Gisou, the online, direct-to-consumer hair-care collection.
Last month, investors Montse Suarez and Anna Sweeting departed from their usual strategy and took part in a later-stage fundraising round in Vestiaire Collective. They were among a group that plugged 497 million Hong Kong dollars, or $64.1 million, into the luxury resale platform because they are “passionate” about Vestiaire’s mission.
“The fundamentals are more compelling than ever, so we are holding firm,” Suarez and Sweeting said at the time.
This type of small, experienced, hands-on investor who specializes in helping build — or rebuild — companies is a rare bird in the fashion, lifestyle and consumer goods industries.
Often, venture capitalists, private equity and trade buyers are dazzled by the entrepreneur or the brand story and want to be seen as first-movers and talent-spotters. So they make the buzzy investment and generate headlines, but often they find they don’t have the expertise — or the patience — to nurture or scale these brands.
In many cases they discover their newly acquired brands are too small to benefit from the back-office efficiencies of a big group and realize they should have purchased a company turning more than 50 million pounds rather than 5 million pounds. After a while, they give up, sell off the little brand, or just shut it down.
Kering is a case in point: Over the past 18 months, the French giant has shaken up its portfolio in order to focus on its big, luxury cash generators like Gucci and Saint Laurent: As part of the plan, Kering sold its stakes in Christopher Kane and Stella McCartney back to the designers and ended its partnership with Tomas Maier for his signature brand.
Some would argue that the small, specialized investors, though rare, are worth waiting for.
“There is an overload of cash all over the world, but what these small companies actually need is smart money,” said a Switzerland-based investor, who requested anonymity. “When they take that money they need to think about management, international expansion, and an investor who brings more than just money to the table. They need investors who believe in the founder, who believe in the model.”
As an owner-entrepreneur Louis Joseph, the founder of Alps & Meters, is looking once again for the right investor as he grows the business. Although he still counts ABLT, and others, as shareholders he is attempting to raise a further few million dollars in growth capital at this particularly tricky time.
Although Joseph believes investors and entrepreneurs are “always in the shark tank, constantly,” he said it pays to be an optimistic realist and that prices and expectations on both the investor and brand side need to be massaged, given this extraordinary moment.
Inevitably, he said, valuations are going to be lower “simply because the risk perception of investors gets higher, and ambiguity is greater, and investors want to price that into the investment. I don’t particularly like it, but I understand it. And I can also demonstrate to the investor that if they do bet on us, in an agreeable way, we’ll cut a deal. I want them to be in it for the long haul,” he said.