Three firms — Mistral Equity Partners, Emerisque and Yucaipa Cos. have emerged as the finalists in the bidding for bankrupt Hartmarx Corp. as a going concern.
New York-based Mistral Equity Partners is said to have submitted the highest bid of the three private equity firms vying for the Chicago-based clothing and sportswear supplier, which filed for Chapter 11 bankruptcy protection in late January. The amounts of the bids could not be determined at press time.
Mistral’s founder, chairman and chief executive officer is Andrew Heyer, who prior to running Mistral was the co-founder of Trimaran Capital Partners, another private equity investment house. One of Mistral’s strategic advisers is Jay Schottenstein of the Schottenstein group, whose holdings include American Eagle Outfitters and DSW. Schottenstein is believed to have provided seed money to get Mistral off the ground. Mistral itself, which is said to be raising money for an investment fund, has been in operation since the latter part of 2007. Its sole deal so far is the $40 million acquisition of Shearer’s Foods Inc. last year.
Sources close to the process said the midrange bid is from Emerisque, a London-based private equity firm co-founded by Ajay Khaitan that focuses on turnaround situations. Sources said Emerisque’s bid is the only one without any contingencies, which means it is also the only one that can quickly close on a deal since financing is already in place. The firm has been involved in the Lee Cooper, Puma and Ben Sherman brands.
The lowest bid, sources said, came from Yucaipa Cos., the Los Angeles-based firm founded by Ron Burkle in 1986, which focuses on mergers and acquisitions. Its holdings stretch across several industries, but the firm has been active in food-related retail chains. On the retail/apparel side, it took a stake in Scoop NYC in 2006, and has experienced apparel/retail executives on staff.
Company executives at the three firms did not return calls for comment.
Sources said the Hartmarx management team favors the Emerisque bid, which is believed to provide for a quick close and seeks to keep most of the firm’s operations intact. The other two bids reportedly contain contingencies, which could subject offers to further adjustments, often downward as assets and inventory valuations frequently lose value as a bankruptcy progresses. Contingencies on the financial side subject the transaction to possibly not closing on time, or even not at all, given the economic backdrop.
Another risk factor is the anticipated negotiation of Hartmarx’s debtor-in-possession financing facility, which is set to expire in July. Negotiations often start about 90 days before expiration. Recently, banks have been more likely to push for a liquidation as they seek returns on loans and often believe a liquidation can achieve that purpose.
That’s most likely the reason the management team at Hartmarx has established a deadline of Friday to name a so-called “stalking-horse” bid, figuring a bird in hand would make negotiations with its lender easier.
Sources familiar with the bidding process said trade creditors also prefer Emerisque, fearing the Schottenstein connection with Mistral might mean an eventual liquidation of the apparel firm. With just one deal under Mistral’s belt, however, there is little to support that conclusion, sources noted.
Even with a named “stalking horse,” the deal still would be subject to better offers at a bankruptcy court auction, which could result in a breakup of the firm’s assets.