Could Palace Skateboards be the next buzzy streetwear purveyor to attract an investment?
According to sources, the London-based firm has held under-the-radar discussions in recent months to sell a stake.
The likelihood of a deal could not immediately be learned, and talks are described as being at the exploratory stage. It is understood the process is being aided by investment bank Rothschild.
Founder Levent Tanju did not respond to repeated requests for comment.
While hoodies and sneakers have been usurped on runways by tailoring and other dressed-up looks, elite streetwear firms have recently attracted the attention of the money crowd, with skateboard firm Supreme achieving a $1 billion valuation following an investment by private equity giant Carlyle in 2017, and e-tailer Farfetch swooping in last month to acquire New Guards Group, licensee of Virgil Abloh’s Off-White brand, for $675 million.
Palace is a smaller, newer contender, but equally prized for its astronomical growth trajectory, meaty margins and a sophisticated business model blending video content, social media savvy, community building and merchandise.
The brand counts 1.5 million followers on Instagram. (By comparison, New York-based Supreme boasts more than 13 million.)
Select collaborations with blue-chip brand partners including Polo Ralph Lauren, Umbro and Adidas have widened its appeal beyond the skater world, attracting thousands of fans to weekly product drops at its four stores, in London, New York, Los Angeles and Tokyo.
Founded in 2009 by Tanju and his crew of skaters, Palace initially sold decks and clothes with its triangular logo in London skate shops, eventually trading up and wholesaling to more prestigious retailers, including End Clothing, Maxfield and Dover Street Market. At one time, it was distributed by Supreme. The label is fueled by Nineties nostalgia, clever plays on its logos, tight ties to the skater community and — occasionally — endorsement by major celebrities including Rihanna, Justin Bieber, Jay Z, Jonah Hill and North West.
It is understood Tanju and co-owner Gareth Skewis are seeking a partner to help fund a retail expansion, develop its organization and manage a fast-growing business that already sprawls over three continents.
According to a filing with Companies House for the year ended Jan. 31, 2018, turnover at Palace rocketed 79.3 percent to 25.9 million British pounds from 14.4 million pounds in 2017. Meanwhile, the gross profit margin widened to 63.9 percent from 62.5 percent in 2017.
The document highlights the release of a full-length Palace skater film, titled “Palasonic,” which was released on DVD, and the opening of a free indoor skate park in South London.
It also notes that, in 2017, “there was a change in the group structure whereby a new holding company, GSLT Holdings Ltd., acquired 80 percent of the issued shares in the company via a share-for-share exchange and the other 20 percent for cash consideration.”
Tanju and Skewis serve as directors of GSLT.
Besides retail expansion, additional growth avenues for the brand include women’s wear. Last year, Palace teamed with Adidas to design on-court tennis outfits for Wimbledon that was billed as its first foray into a women’s category.
If Palace does bring in an investor, the deal could offer an important signpost for the streetwear industry and fashion.
Since Supreme scored its $500 million investment from Carlyle, other streetwear bands and private equity firms have been wondering just how much a still-growing brand in the sector is worth, particularly as the fashion focus has moved toward a new aesthetic.
But even if streetwear is no longer at the white-hot center of the style zeitgeist, there’s still plenty a would-be investor, particularly in private equity, could find attractive about Palace.
Private equity firms often make their money by buying developing businesses that have caught branding fire, but don’t have the back-office expertise to really get to the next level. The investor then helps professionalize the company, hiring financial and operational pros, to set it on a new growth trajectory and then sell it to another buyer (or stage an initial public offering in the case of larger companies).
But for Palace, and streetwear and skate companies in general, this path also can lead to some tricky territory. These companies come from a hard-scrabble world where authenticity and street cred are paramount and hard-won over years. While living well is often praised, cashing in can look like selling out. And the fear — for both companies and buyers — is that street and skate brands can start to lose their appeal as they go corporate.
Supreme is as hot as ever after bringing in big-time private equity money, but that brand has been the leader in its field for years and has plenty of cachet to buoy it. Other brands could face more questions from core customers or have a harder time finding and holding the interest of a broader audience.
That kind of uncertainty can keep buyers on the sidelines or cause investors to revolt.
Witness Farfetch’s New Guards acquisition, which gave it new access to Off-White and Palm Angels, two of streetwear’s hottest brands as well as production capacity to help it feed its luxury platform. But instead of applauding the move, investors worried that Farfetch, which had been more of a pure digital play, was starting to complicate the picture by being directly tied to brands, even if they were on the ascent.
Farfetch lost $2.4 billion in market capitalization after investors were spooked by the New Guards deal as well as continuing losses.
That leaves the street and skate M&A market somewhere betwixt and between.
A big bet on Palace could help turn things around.