Martha Stewart is moving on.
Sequential Brands Group has signed a definitive agreement with Marquee Brands to sell the Martha Stewart business for an estimated $175 million, with an earn-out opportunity for an additional $40 million. The deal also includes the Emeril Lagasse brand.
This is significantly less than the $353 million Sequential paid for the Martha Stewart Living Omnimedia brand in 2015. Sequential had been quietly shopping the brand around for the past several months. The initial deal was half stock and half cash so the purchase price is about what Sequential laid out in terms of cash.
In an exclusive interview with WWD, Karen Murray, chief executive officer of Sequential, said the sale will allow the company to focus more on its active and fashion businesses while paying down its debt.
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According to S&P Capital IQ, Sequential has $170 million in annual sales, earnings before interest taxes and depreciation of $90 million and a $611 million debt load.
Sequential’s top two fashion brands are Jessica Simpson and Joe’s Jeans. Its leading active brands are Gaiam, Avia and And 1. It also owns William Rast, Ellen Tracy, Caribbean Joe and other brands.
“This transaction allows Sequential to make meaningful progress in de-levering our balance sheet, which is a top priority,” Murray said. “This process was conducted after careful consideration by our board of directors and advisers. While we have made significant progress with the Martha Stewart and Emeril Lagasse brands, we determined the best direction for the company going forward is to focus on our core active and fashion brands and drive even more profitable growth across our business. I have confidence that the Martha Stewart and Emeril Lagasse brands will continue to flourish under new ownership as they build on what we have accomplished to date.”
Sequential Brands Group chairman William Sweedler added, “This transaction gives us financial and operating flexibility and streamlines our business around core brands with the highest margins and attractive growth prospects. I believe this new focus will generate greater shareholder value.”
The transaction is expected to close in the second quarter. At that time, Sequential will provide an updated financial outlook for 2019. The company is expecting additional cost savings from the subleasing of its current corporate headquarters.
The Martha Stewart brand, which has reported sales of more than $1 billion, has a “different overhead than our other brands and doesn’t fit into our model,” Murray said. One example of that is Stewart’s elevated pay package. In 2017, she was paid $6.6 million in compensation, including a guaranteed $1.3 million in annual bonuses and expenses. This was up from the $5 million she earned in 2016 and the less than $2 million she earned in 2015.
Murray said Marquee as a private company is ultimately better suited to run a brand with the economics of Martha Stewart than the publicly traded Sequential.
According to Sequential’s 2017 annual report, the Martha Stewart brand reaches about 100 million consumers each month. Its products are carried in retailers including Macy’s, Home Depot, Staples and Michael’s.
In 2017, Sequential signed a deal with QVC to extend the Martha Stewart brand into apparel, skin care, food and beverages. This was the first major deal Murray consummated for the company after joining in early 2017. The apparel part of the business is growing but still represents a small part of the overall business, Murray said.
Most recently, Stewart teamed with Canopy Growth Corp., a Canadian cannabis company, to bring supplements infused with the plant to pets and possibly other consumer products.
Marquee, which also owns BCBG, Ben Sherman, Bruno Magli and Body Glove, said Martha Stewart and Emeril Lagasse will be housed in a new home and food division and bring the company’s volume to more than $2.3 billion in annual retail sales.
Stewart will join Marquee Brands’ team and continue to oversee the brand. “I am thrilled to enter into this partnership with Marquee Brands, an organization that shares the entrepreneurial spirit and creativity on which I founded my business,” she said. “In this ever-evolving retail and media environment, I am confident that Marquee’s business values, sophisticated digital expertise and international relationships will drive continued growth and position the Martha Stewart brand well for the future. My team and I look forward to embarking on this next chapter.”
Sam Porat, managing director of Neuberger Berman, which manages the investment funds that own Marquee, said: “Martha Stewart is a visionary whose educational mission and innovative approach has inspired millions of people to live more meaningfully. Martha Stewart branded products, known for their high quality, superior function and beautiful design, have enriched homes around the world.”
Zachary Sigel, managing director of Neuberger Berman, said the acquisition allows Marquee to enter the lucrative home, food and media sectors and diversify its portfolio. He also revealed that Carolyn D’Angelo will be joining Marquee as president of the home division.
Michael DeVirgilio, president of Marquee Brands, which was founded in 2014, said the company is “committed to making impactful investments across marketing and our established e-commerce platform to support these brands. We look forward to this best-in-class team joining our organization to help us drive continued growth.”
Tengram Capital Partners and Barron International Group LLC served as advisers to the company, and Gibson, Dunn & Crutcher LLP acted as its legal counsel. Houlihan Lokey provided a fairness opinion to Sequential’s board. Stewart was represented by Grubman Shire Meiselas & Sacks.
Sequential Brands’ stock rose 39 percent to $1.59 in after-hours trading.