Global Brands Group Holding Ltd. is eyeing more deals in the denim space to scale up its latest platform.
This story first appeared in the September 15, 2015 issue of WWD. Subscribe Today.
The company just closed on the acquisition of certain operating assets of the Joe’s Jeans brand for $13 million. GBG has the long-term license agreement for the brand’s core categories. In a separate, but brand-related transaction, brand management firm Sequential Brands Group has closed on its acquisition of the IP assets of the Joe’s brand for $67 million.
The aggregate total for both deals is $80 million, which Joe’s Jeans Inc. said the proceeds have been used to repay some of its outstanding debts, including all of the outstanding debt under the company’s senior term loan agreement.
For GBG, acquisition of the operating component of the Joe’s business represents the company’s foray into a new platform for its business segments, with the latest in denim.
Bruce Rockowitz, chief executive officer and vice chairman of GBG, told WWD, “We really have been focused on what are the categories that we want to be big in and have some scale. Denim was one [that we identified].”
According to Rockowitz, denim as a category has been down due to the rise of ath-leisure, which in turn has also impacted sales of fashion apparel. “Over the last year, we think the denim category is now near the bottom [because] we’ve started to see an upswing in the business. Denim goes in cycles, but it is not going away. It is an important staple [in one’s wardrobe] and will be more so over time,” Rockowitz said.
GBG’s ceo also said the company will do more deals so it can expand its denim capabilities. “This is just the beginning, not the last. There will be more deals. We want to have scale, more than one brand and not just in premium denim. We also want to be in the moderate and value categories.”
As for whether the focus will be on the acquisition of a denim brand or license, Rockowitz didn’t rule out the possibility of buying a brand. Although he was also quick to note that buying a brand is not GBG’s typical focus.
“We have acquired operating companies that just happened to have a brand. Frye came with Jimlar [Corp.] when we did the footwear acquisition. What we can do is build the [denim platform] by distribution channel or grow by geographic region,” Rockowitz said.
The company already has platforms in children’s, apparel, footwear and accessories.
With the completion of its Joe’s brand acquisition, Sequential has raised its forward looking twelve month royalty revenue projection to $98 million to $100 million, and $61 million to $63 million of adjusted earnings before interest, taxes, depreciation and amortization, from its previous projection of $88 million to $90 million in royalty revenue and $53.5 million to $55 million of adjusted EBITDA. The financial impact to the balance of the current fiscal year is believed to be minimal as the new license agreement with GBG is expected to have most of its impact in fiscal 2016.
Sequential said it has in excess of $325 million of aggregate contractual guaranteed minimum royalties under existing licenses at the close of the Joe’s brand transaction, which represented 94 percent of the purchase price. Financing for the acquisition was provided under Sequential’s existing credit facilities with Bank of America and GSO Capital Partners, an affiliate of Blackstone Group.
The brand management firm said projections and aggregate contractual minimum royalty metrics do not include the pending Martha Stewart Omni Living deal, which is expected to close by yearend.
The company is still working toward the completion of the merger of its Hudson business with RG Parent, LLC, parent company of Robert Graham. Completion of the Hudson transaction is expected in December. Upon completion of the merger, the company will be renamed Differential Brands Group Inc. and will continue to be a public-traded firm on the Nasdaq. Hudson’s founder Peter Kim will head up the Hudson operation.
Founded in 2001 by Joe Dahan, who has joined Sequential as creative director of the Joe’s brand, the lifestyle offerings have expanded from premium denim to include wardrobe staples, accessories and footwear.