Private equity firm TSG Consumer Partners is becoming a bigger player on the apparel front. The firm’s latest addition is a stake in Paige Denim.
This story first appeared in the July 18, 2012 issue of WWD. Subscribe Today.
Terms of the transaction were not disclosed, although sources said the San Francisco-based TSG is believed to have taken a majority interest in the firm.
Paige Denim is TSG’s third foray into the apparel and accessories market. The firm, known for its deals in the beauty space (Smashbox Cosmetics, e.l.f. Cosmetics and Pureology), began its push into apparel and accessories earlier this year. The first transaction was a 50-50 equity stake with jewelry firm Alexis Bittar in January. In March, TSG took a minority stake in Rebecca Minkoff, a firm best known for its handbag collection that now includes trendy contemporary sportswear.
TSG managing director Hadley Mullin said the financial firm isn’t done building its accessories and apparel platform.
“We at TSG have broadened our investment scope to encompass apparel and accessories. In the apparel sector, there’s a lot of opportunity, with [some] subsegments having very high growth [potential].…The initial three investments in the category are the first of many more to come,” said Mullin.
There’s also no shortage of investors willing to partner with and rely on TSG’s acumen, not to mention its consistent rate of returns. TSG in November closed its sixth fund, with $1.3 billion in commitments.
Mullin said each of the three investments meets the investment criteria that TSG seeks out when it evaluates opportunities: a wholesale component with a retail distribution channel; brands that can be very productive with their own retail footprint, and an existing international business or the potential for an overseas presence.
The three also are young, growing businesses. Bittar has an annual wholesale volume of more than $30 million, while Minkoff last year posted $35 million in revenue. Market sources estimate Paige Denim has annual volume of more than $100 million.
While TSG’s investments are focused on high-growth middle-market firms, Mullin emphasized there’s really “no hard or fast cutoff regarding annual volume. We’re focusing on brands that are currently under-distributed relative to their full potential.”
Mullin also said TSG doesn’t have a fixed time line for when it must exit an investment. “We typically assume we will partner with a company for five to seven years. Sometimes it’s less than that. For some reason, a brand may accelerate [faster] than anticipated and opportunities appear sooner rather than later for an exit. Sometimes [we hold the investment] longer than five to seven years. If there’s still substantial headroom ahead for the company, we’ll remain partnered for a longer period of time.”
TSG doesn’t hold itself to any specific minimum investment stake but prefers to invest a minimum of $25 million to $30 million in any stake it takes on. Half of its investments are majority stakes, the balance are minority interests.
“The key for us is having both a shared vision and [the same] values as the management team on where the brand is going. We care about that technically more than we care about having control,” Mullin said.
TSG principal Jenny Baxter said the three industry investments are each interesting because they take a “differentiated and fresh approach in their categories. They are each doing something different in what are competitive and crowded [fields], and they are delivering to consumers what the other brands are not.”
Baxter said the existing management team at Paige will continue with the firm. “We place a lot of importance on the continued involvement of the founding team. In terms of what creates a brand, a lot of it is intangible. It is so important that the team stays on and drives the brand forward,” Baxter said.
The Los Angeles-based affordable-luxury brand was founded eight years ago by former denim fit model Paige Adams-Geller, Michael Geller and Michael Henschel. All three principals will continue to hold a significant stake in the firm.
Janki Lalani Gandhi, vice president for The Sage Group, which represented Paige, said, “The management team has worked extremely hard to build the company up to where it is today, and partnering with TSG will allow them to further accelerate the [firm’s] growth and evolve Paige into a global lifestyle brand.”
The line, primarily bottoms, features varying style options for men’s, women’s, maternity and petite. Jeans average $169 a pair, while women’s shorts start at $129 a pair. A few women’s bottoms were priced over $200. The line also showcases the new denim trends that are hot this year: lighter fabrics, patterned and colored denim.
Paige launched in 2004 at several high-end specialty retailers, such as Intermix, Ron Herman, Bergdorf Goodman and Harvey Nichols. It is sold in more than 80 countries worldwide.
Adams-Geller said she expects to have a meeting shortly with the TSG team in which they will “decide on the next moves for the brand.”
While the initial focus will likely be an expansion of the brand into other denim products, Adams-Geller said she’s got some ideas for sportswear, and later on possibly footwear and handbags.
According to Adams-Geller, there’s one thing that isn’t likely to change for its denim bottoms’ offerings: “$169 to $189 is pretty much our sweet spot. We’ve stayed directed in that price-point range.”