Backstage at Perry Ellis Men's Fall 2018

With financing in place, George Feldenkreis was able to demonstrate both the seriousness of his intent to take Perry Ellis International Inc. private and the ability to execute on his buyout plan from the get-go.

Nearly five months after Feldenkreis offered to buy back the shares of Perry Ellis that he didn’t already own, the firm on Saturday said it has entered into a $437 million transaction with the company’s founder and former chairman to go private. The deal will give Perry Ellis shareholders $27.50 a share in cash, representing a premium of over 21 percent on the value of the share price on Feb. 5 when Feldenkreis first made his offer. Shares of Perry Ellis closed on Friday at $27.97 in Nasdaq trading, advancing over the last few months on expectations of a possibly higher offer.

Feldenkreis founded the company in 1967 when it was then known as Supreme International. It acquired Perry Ellis in 1999, six years after completing an initial public offering, after which it changed its corporate name.

The company also said it would defer its annual meeting so the new private entity can elect directors. Feldenkreis, a board member, will be the controlling stakeholder. He and his son Oscar, currently chief executive officer, together own nearly 18 percent of the company. According to financial sources, transactions where a public company is being taken private typically take at least four months to close due to additional required regulatory filings. That time frame points to a closing date of around late October or November. The transaction also has to get the approval of shareholders. Sources familiar with the talks said they expect at least 30 percent of the shares — those owned by the Feldenkreis family and company employees ­— will be voted in favor of the transaction.

Oscar Feldenkreis will remain ceo, while his father will take on a management role. The elder Feldenkreis was chairman until he was pushed out last September. With the exception of the ceo, other family members were also pushed out shortly after Feldenkreis left the company. There is speculation that once the deal closes, they too could return to the company.

Sources said there were others who had kicked the tires and thought about buying Perry Ellis. In particular, a men’s accessories wholesaler, who has played in the acquisitions space, spent about two months in discussions with Perry Ellis, but ultimately had to walk because it couldn’t pull the financing together to complete a deal. The firm’s identity could not be learned.

Feldenkreis’ deep knowledge of the company gave him the advantage, as did the ability to close on the deal once approval was granted. Sources believe that it took him about four months to secure financing before he went public with his takeout offer. The deal is being financed through an asset-backed revolving loan underwritten by Wells Fargo Bank. As first reported by WWD, the former chairman — in addition to equity provided by the Feldenkreis family — also walked into the talks with a commitment from Fortress Credit Advisors LLC of a $282 million multi-tranche term financing facility.

Feldenkreis has been advised by Scope Capital Partners, the new merchant banking firm of Peter Comisar, the former vice chairman at Guggenheim Partners. In addition to advising Feldenkreis, Scope was the adviser to Boardriders in its acquisition of Billabong. Scope’s investment fund also made a significant minority stake in men’s designer brand John Elliott.

Feldenkreis’ success also had the benefit of buying out a company in the wholesale business, as opposed to trying to take a retailer private.

For example, the Nordstrom family last June was hoping to do a takeout of the family business that they control for around $50 a share. They were even said to have lined up a $1 billion investment from private equity firm Leonard Green & Partners and then went to obtain additional financing, with the company’s special committee ultimately deciding to reject the $8.4 billion offer this past March.

One of the concerns raised by investors monitoring the lengthy management-led process was that $50 wasn’t exactly a premium on the shares. Although the stock jumped 16 percent to $40.48 immediately after the family revealed its plans, the shares advanced further to $47.74 in September when it was disclosed that the retailer was partnering with Leonard Green. The shares were trading at $47.70 in March when it was disclosed that the buyout offer had been rejected by the retailer’s board. Some investors believed that most of the proceeds would go to the private equity investor and leave little on the table to help the family grow the company. And there were other hiccups along the way. Finding an underwriter for financing and then finding investors for the bonds was said to be a tall order last fall given the backdrop of the retail landscape and the change in consumer spending patterns. And the Toys ‘R’ Us bankruptcy in September was also said to have spooked investors. That pushed the efforts into 2018, with the hope that a better holiday season would help. It did, but the difficulties in getting a deal done at $50 also means going higher is not likely in the current retail climate. The family has left the door open to another try later on should conditions change.

Gilbert Harrison, chairman emeritus of investment banking firm Financo Inc. and now founder and chairman of Harrison Group, said, “The two are very different companies. Nordstrom is one of the very best department store companies in the country, but with the ‘cloud’ over the future of department stores and the multibillion dollar financing needed to complete [the Nordstrom transaction], there is substantial risk if the price is too high especially after the problems that have been seen in the Neiman Marcus buyout.

“Perry Ellis is a wholesaler with several different brands, including their namesake brand, Original Penguin and others,” Harrison said, concluding that the future growth of the company isn’t in doubt and that structure of the deal presents less risk to investors and debt holders.

One fashion executive who recently checked out financing options said wholesalers are actually in a better position when they look for financing than retailers, who are more tied to the whims of the consumer. “For a wholesaler, it is up to us to make the necessary adjustments on who to sell and where. We have more flexibility and can change course more easily, whether it is where and how much to produce, where to source, and even on the design choices we make,” this person said.

A financier who has worked on these deals added that wholesalers with good brands also have the added benefit of a line of income from licensing. This individual also noted that a wholesale business is not as capital intensive as the overhead required for retail operations.

David Scheiner, non-executive chairman of the Perry Ellis board, said the special committee conducted an independent process to “ensure the best outcome to maximize value for shareholders.” He added that upon closing, the deal “delivers an immediate cash premium,” which is in the best interest of all shareholders.

Oscar Feldenkreis said the company’s partners should benefit from its planned investments as a private firm, and that “Perry Ellis intends to be at the forefront of the crucial digital transformation of the apparel industry from marketing to e-commerce, to applications of artificial intelligence.”

George Feldenkreis said the deal opens a “new chapter” for the brand, noting the “markets that the company competes in have undergone transformative changes and that the ability to invest and innovate is limited by the short-term pressures of being a public firm.

The company under his chairmanship had made investments in its digital infrastructure, adding a photography and video studio, as well as a new digital system that now allows retailers to see the texture of fabrics in 3-D format. Sources have told WWD that the system shaves about two months from the production cycle because it eliminates a good portion of the typical sample-making. In the past, samples have typically cost Perry Ellis about 1 percent of the company’s total revenues, or in fiscal 2019 projections what would have been $8.6 million of the estimated annual revenue range of $855 million.

Those investments will continue, according to the former chairman, who said future investments he is planning are in digital innovation, artificial intelligence and marketing to support the long-term growth strategy of the company’s lifestyle brands.

 

 

George Feldenkreis

George Feldenkreis  Ragozzino/BFA/REX/Shutterstock

 

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