Digital Brands Group is looking to be a holding company for many more brands by year’s end.
The company recently closed its first acquisition deal for women’s contemporary brand Bailey 44, which also owns Ali & Jay, both of which are mainly wholesale lines with a relatively small online business found in specialty and department stores, like Nordstrom. But Hil Davis, chief executive of DBG, said he’s getting ready to announce the acquisition of three more brands in the next two months or so. That will bring the company’s stable up to seven individual brands, all of which will be cross-marketed to consumers directly.
“Direct-to-consumer brands can’t scale on their own anymore,” Davis said. “So we’re in acquisition mode.”
The company is also in IPO-mode, and is currently auditing inventory and financials to prep for the Securities and Exchange Commission regulations. Davis said he’s looking to register by the end of April, if not sooner. Part of the hurry is a desire for liquidity, “We’ve had to pass on some great brands,” he said, for lack of cash. Another part though is the upcoming brand acquisitions are signed on as “close at IPO,” meaning they won’t be finalized until DBG is publicly listed.
“It’s hard to get good people, brands to come to the table,” Davis said. “Everyone’s like, ‘Call me when you’re public and we’ll talk.’
At the time of listing, Davis expects annual revenue to be around $75 million and earning before interest, tax, depreciation and amortization around $5 million. Post-IPO and with another two expected acquisitions, he’s expecting around $125 million in annual revenue. He also last year hired chief marketing officer Laura Dowling, previously of Coach, and chief financial officer Reid Yeoman, previously of Hurley.
With all of the acquisitions, DBG is looking to keep quality top of mind. “We’re not coming in like a VC and demanding more product and moving all the production to China,” Dowling said. “We want to keep the quality and keep the brands intact.”
Even the ongoing coronavirus isn’t going to stop Davis from listing, in one way or another. He said it may delay his timeline, possibly to September, but most of the brands he’s operating now and poised to operate in the immediate future, are produced in Europe.
“I’ve been talking with a lot of people over there and already, in a lot of places cases are stable or going down,” Davis said. “If the timeline holds, people are saying by the end of April we’ll be on the other side of it. It will take longer for the markets to come back, but the market is always skittish.”
Coronavirus or not, DBG sees now as a good time to be in the business of acquiring fashion brands, with a focus on contemporary price points and lower-end luxury price points. Even though the acquisition market in fashion for the last few years has been slow, Davis said he knows of at least 20 brands that went up for sale in the first quarter of this year, more than the whole of 2019.
“It’s changing so rapidly and will continue to,” Davis said of the market for fashion brand deals. “The VC’s just aren’t writing checks to direct-to-consumer brands anymore. It’s a hard place to be. There are some great brands out there and founders are realizing every year it’s less valuable. It’s fruit now, not wine.”
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