In a blockbuster $1.38 billion deal, Differential Brands Group Inc. has inked a definitive agreement to acquire a significant part of Global Brands Group Holding Ltd.’s North American licensing business.
The deal brings together Differential’s Hudson, Robert Graham and Swims brands with GBG’s Disney, Star Wars, Calvin Klein, Under Armour, Tommy Hilfiger, BCBG, Bebe, Joe’s, Buffalo David Bitton, Frye, Michael Kors, Cole Haan and Kenneth Cole labels.
Upon closing, which is expected in the third quarter, Differential will have in excess of $2.3 billion in pro forma annual revenue in men’s, women’s and children’s apparel and accessories.
William Sweedler, chairman of Differential and managing partner of Tengram Capital Partners LP, which played a pivotal role in bringing the parties together said: “On behalf of the board, I am thrilled that we were able to structure a transaction with the Fung family to acquire one of the leading branded consumer soft goods companies in North America with a world class management team led by Jason Rabin.”
Sweedler said Rabin and his team “plan to invest significant capital into this transaction, which will transform Differential into a large-scale North American branded platform.” Rabin, president of GBG North America, said he was eager “to join Differential Brands Group and lead our combined platform by leveraging our expansive infrastructure, distribution and sourcing networks to drive growth, and we look forward to working with the Differential management team and Tengram to help support the company’s growth as it capitalizes on promising market opportunities. We are proud of what we have accomplished since joining Li & Fung in 2000, judiciously expanding the GBG platform and driving profitability, and thank them for their long-standing support and partnership.”
Sweedler pointed to Rabin’s “proven track record of successfully growing numerous world-class brands since inception. We are confident this transaction will create tremendous value for our stockholders, as well as provide enhanced opportunities in North America for our brands and business partners.”
Commenting on the transaction, Bruce Rockowitz, chief executive officer and vice chairman of Global Brands Group, said, “We conducted a strategic review of the group to determine the best way to improve shareholder value. We concluded that divesting the portion of our business that has a high present-day value, was the way to move forward. With this transaction, the group will be able to improve our balance sheet significantly and simplify our organization, while focusing on the less established lines of business where we see high growth potential going forward.”
Subject to shareholders’ approval of the transaction, Global Brands Group will take on a substantially new profile, becoming simpler, flatter and more nimble, following a trend set by its parent company, Li & Fung.
On the branded product side, the European and Asian businesses will remain as before, while its U.S. business will focus on footwear and its remaining fashion business. Brand management will continue to be managed on a global basis, the firm said.
Global Brands Group also released its yearly earnings results with the announcement of the Differential deal. It described the year ended March 31 as one of “significant challenge amidst an evolving industry landscape.” The Hong Kong-based group recorded a net loss attributable to shareholders of $903 million compared to a profit of $90 million the year before. Revenue grew 3.4 percent to $4.02 billion.
As warned in March, the company was affected by the loss of the Coach footwear license when it expired in June 2017 due to Tapestry Inc. taking the production in-house. Although the firm said it was working to replace the business volume, it noted that it is highly unusual to see such a large single license in the footwear sector. It was also affected to a lesser extent by the discontinuation of the Quiksilver kids’ fashion license stemming from the company’s bankruptcy.
“While the strategic divestment discussed above will substantially reduce our brick and mortar locations, our highly selective investments in direct-to-consumer channels will inevitably attribute to higher operating costs in the short term,” said Rockowitz. “We believe men’s and women’s fashion will continue to be a fast-growth business for the group and deliver attractive margin profiles in the long run.”