As J. Crew Group Inc. reportedly looks at restructuring its debt, its part owner Leonard Green & Partners could perhaps be setting its sights on a broader fashion platform.
That’s because Leonard Green also has a stake in brand management firm Authentic Brands Group, which last month filed confidentially to go public. WWD first reported in May 2015 that ABG had plans to go public. An IPO would help the private equity firm see a return on its investment in ABG. How much would depend on the number of shares to be floated.
J. Crew and the private equity firms that took it private — Leonard Green and TPG Capital — in a $3 billion transaction in 2011 are considering the placement of the retailer’s intellectual property assets into a separate entity, according to someone familiar with the situation. Reuters on Friday first reported on the debt restructuring talks.
A spokeswoman for J. Crew declined comment Sunday. Officials at Leonard Green, TPG and ABG could not be reached for comment.
A source familiar with the discussions said that J. Crew’s debt restructuring, if completed, is expected to give it more time to follow through on its business turnaround plan. Part of those discussions include the idea of putting its IP assets into a separate subsidiary. That separation isn’t a new idea. Years ago Donna Karan held on to ownership of her IP assets for her firm, then took the operating company public. Eventually her public firm was acquired by LVMH Moët Hennessy Louis Vuitton, which later also purchased the entity that owned the IP assets. G-III Apparel Group now owns the Donna Karan and DKNY brands. And more recently in 2005 Sears Holdings Corp. chairman Edward S. Lampert securitized the retailer’s core brands — Kenmore, Craftsman and Die Hard — into a separate entity called KCD IP after he merged Sears, Roebuck & Co. and Kmart Holding Corp.
Financial sources said should J. Crew do a similar transaction, the new entity would license out the trademarks to the current J. Crew operating company, which would then pay a fee for the use of the marks.
Leonard Green’s ownership of both J. Crew and ABG has some observers speculating about what could happen to the retailer’s IP assets.
But where it gets interesting is what could happen down the road to ownership of the IP assets.
These sources speculated that should ABG complete its intended IPO — financial sources said the market currently is not exactly hospitable to IPOs — the brand management firm might perhaps one day be the buyer of J. Crew’s IP entity. While one financial source didn’t want to say that the equity markets are “bullish,” this individual did note that conditions could warrant that conclusion should the markets continue to trade up after President-elect Donald Trump gets sworn in as the 45th President of the U.S.
Another individual said, “When ABG goes public and should it go at a high multiple, there’s a possibility that the publicly traded ABG would buy the J. Crew IP assets, and the proceeds could be used to pay down some of the J. Crew debt.”
While Leonard Green and TPG wouldn’t get back its entire investment in J. Crew, a financial source said, “It’s a neat way to extract a little value out of the company.”
There’s no guarantee that ABG would complete an IPO, or even acquire J. Crew’s IP assets, but putting those assets into a different entity now preserves the option for that possibility down the road.
ABG’s chairman Jamie Salter has experience structuring deals that others prefer to walk away from, and is considered the brains behind many of transactions the company has completed. He acquired the Hartmarx brands when no one wanted to keep the Hartmarx factories in operation, and in September — in an ABG-led consortium that included Simon Property Group and General Growth Properties — closed on a deal that keeps teen retailer Aéropostale in business. It more recently has set its sights on bankrupt American Apparel, and ABG, as well as other brand management firms such as Sequential Brands Group, are expected to attend the court-approved auction next month for American Apparel.
Salter could not be reached for comment.
Financo chairman Gilbert Harrison said, “Jamie Salter and his partner Leonard Green have done a phenomenal job in acquiring IP assets in a host of different sectors, from entertainment to apparel to sports. Certainly as a public entity, ABG would be able to grow even greater.”
Not everyone was positive about the idea of moving J. Crew’s IP assets into a separate entity. One investment banker wasn’t in favor of the move, noting that the financial mechanism leaves nothing for J. Crew except its operations should a transaction actually happen down the road. This financier likened it to activist investors pushing department stores to monetize their real estate holdings, noting that it’s another way to strip the company.
Separately, J. Crew is also looking at succession planning and trying to identify someone who could take the reins from Millard “Mickey” Drexler, but that is understood to be a process that is not connected to the debt restructuring.