JA Apparel Corp., the owner of the Joseph Abboud and Joe by Joseph Abboud brands, is said to be close to inking a deal with Iconix Brand Group.
This story first appeared in the May 26, 2011 issue of WWD. Subscribe Today.
A deal, although imminent, could still fall apart, financial sources said. Terms of the transaction were not immediately available, but sources said it could be valued in the $90 million range, lower than the $100 million-plus price tag that JA’s principal owners, private equity firm J.W. Childs Associates, had been seeking.
J.W. Childs, which formed JA Apparel to acquire the trademarks in 2004 for $73 million, less debt, put the operation up for sale in 2006, then took it off the market for a time when it couldn’t find a buyer. Earlier this year, prospective buyers SKNL International, the owner of HMX Group, and Li & Fung, the Hong Kong-based conglomerate, each signed confidentiality agreements. SKNL was eyeing the tailored apparel business, while Li & Fung was interested in JA Apparel’s licensing operation.
If purchased, Iconix would operate Abboud as it does its other branded business, along the lines of a licensing operation, likely keeping existing licensees and expanding the designer brand’s reach into additional product categories.
Launched in spring 1987 by designer Joseph Abboud, the company formed a joint venture with GFT in 1988 and was sold to a GFT affiliate for $65.5 million in 2000. The trademarks were later sold to JA Apparel. Marty Staff, now the chief sales development officer for American Apparel, is the former chief executive officer of JA Apparel and remains a minority owner of the firm, holding a stake of less than 10 percent.
Staff and executives at both J.W. Childs and Iconix declined comment Wednesday.
Sources said both financial and strategic buyers have expressed interest in the operation, but one sticking point for any transaction has been what to do with the ownership of JA Apparel’s unionized Boston factory, which produces the tailored apparel component of the business.
It was unclear at press time how the factory issue would be resolved should a deal with Iconix be completed, although speculation is that JA Apparel would become the licensee of Iconix and own the factory as it continues to manufacture tailored clothing. Another option is to have the tailored business sold to another entity. And while SKNL has been mentioned as a contender, it wasn’t clear whether SKNL would be interested in another factory since it already has three of its own through its HMX operations.
Billy D. Busko, managing director at investment banking firm Consensus Advisors, which is not involved in the transaction, said, “Joseph Abboud is an iconic brand. It has brand loyalty from its customer base and is a strong department store brand, particularly at the luxury level. An acquisition by Iconix would help diversify its business. About 70 percent is in fashion and apparel, primarily on the women’s side, and buying a men’s brand would help balance that portfolio. It will also balance [its distribution tier]. Of Iconix’s 30 brands, only two are distributed at the luxury channel. The bulk of Iconix’s brands sell in department stores, the midtier and value channels.”
Iconix is a brand management firm that owns intellectual properties that generate predictable revenue streams from licensing arrangements. For the first quarter ended March 31, income rose 26.9 percent to $31.4 million, or 42 cents a diluted share, from $24.8 million, or 33 cents, in the year-ago quarter. Total revenues, primarily from licensing income, gained 28.8 percent to $92.4 million from $71.7 million. Free cash flow for the quarter was $45.9 million.
Its chief executive officer, Neil Cole, has made no secret of his desire to acquire more brands.
He told Wall Street analysts on an April 27 conference call on first-quarter results, “We expect to continue to be acquisitive and further leverage our platform through new acquisitions later this year.”
The company on April 27 also said it acquired the worldwide master license for the Ed Hardy brand, which it estimated would then provide free cash flow for 2011 in the range of $167 million to $172 million.