Beleaguered American Apparel LLC is getting a lot of attention from prospective buyers — and there could be more asset sales on the way.
There has been talk recently that brand management firms such as Authentic Brands Group and Iconix Brand Group have been circling American Apparel over the past two months, taking a look at the books. Executives at ABG could not be reached on Thursday, while Iconix declined comment.
ABG is a name that surfaces often when battered brands might become available, given its penchant for coming up with out-of-the-box transactions, such as its recent deal for bankrupt Aéropostale Inc. that included as partners Simon Property Group and General Growth Properties. And Iconix is a firm that frequently gets pitched deals, even though it passes on most opportunities.
Sources familiar with the matter said American Apparel would consider a bid that involved a restructuring via another bankruptcy filing as part of the sale process. Separately, the thinking in the markets is that a bankruptcy filing would involve a prepackaged deal, one that has a so-called “stalking horse in place” and in a Chapter 11 environment that would allow the company to rid itself of leases and other assets that a potential acquirer would not want. But even with a bidder in place, there’s no guarantee that the sale would go through since it would be subject to court approval and then a bankruptcy auction to see if there’s a better deal to be had for creditors.
The company has said in the past it’s considering its options and sources close to the matter said American Apparel is in communication with multiple bidders, none of which has proposed manufacturing outside the U.S.
Another name that has surfaced as a possible strategic buyer is innerwear giant Hanesbrands Inc. Executives at Hanesbrands could not be reached for comment. The firm earlier this year completed the acquisitions of the Champion Europe and Pacific Brands businesses for about $200 million. It has experience with acquisitions, having completed eight over the past 10 years. While the majority of those have been on the international front, sources believe that acquisitions will continue to play a key role in the firm’s growth, particularly opportunities where Hanesbrands thinks it can improve the supply chain and layer on its Innovate-to-Elevate program to expand operating margins.
If American Apparel were to seek another bankruptcy filing, it would come only nine or 10 months after it emerged from the last go-around. The retailer only emerged from bankruptcy in February and this month saw the departure of ceo Paula Schneider. The executive said in her resignation letter of Sept. 21 to the company’s board, obtained by WWD, that there’s been “strong initial sell-through rates in retail, wholesale and online” with the fall deliveries and also reported a 30 percent expense reduction since she joined the company in early 2015. A source told WWD earlier this year the company is not expected to clear $350 million in revenue for 2016.
Schneider’s letter hinted at a sale of the company, as did a letter from the company’s chairman Brad Scher to employees, also last month.
In September, American Apparel tapped Chelsea Grayson, who served as general counsel for the firm, as its new ceo.
WWD learned in February the firm’s dye house in Hawthorne, Calif., was to be shuttered as part of a consolidation effort aimed at eliminating redundancies in the production process. A letter, obtained by WWD at the time, written to workers from Schneider, told employees the closure was one way for the company to swing back to profitability.
Industrial auctioneer Bid It Up, based in Studio City, Calif., held an on-site auction of the machinery for the Hawthorne dye house earlier this month, selling off dissolving stations, dryers, ovens, air compressors, microscopes and other equipment. A handful of American Apparel workers were there that day with plans to move the rolls of fabric — not up for sale — to the main warehouse in downtown Los Angeles.
The event, which drew American Apparel founder Dov Charney, was a bust before it started, with an unknown buyer working out a deal via phone to acquire the plant’s entire contents.
Marketplace rumblings have American Apparel looking to sell off additional equipment from other plants.
A company spokeswoman declined comment on Thursday about further possible asset sales. She also declined to comment on speculation of another bankruptcy petition. Market sources said such a filing might occur over the next several weeks.