Archive for the ‘Apax’ Category

Phillips Van Heusen Buys Tommy Hilfiger for $3 billion in Cash & Stock Deal, Securing Great Returns for Apax Private Equity

Tuesday, March 16th, 2010

PVH’s acquisition of Tommy Hilfiger is a great transaction for a solid brand at 8x trailing EBITDA.  Apax, the owner of Tommy Hilfiger since its $1.6 billion buyout in 2006 will make 4.5x on its investment, one of the most successful private equity exits seen this year, especially for a company purchased in 2006.

According to Ms. Skariachan of Reuters, Phillips-Van Heusen (PVH.N), owner of the Calvin Klein label, agreed to buy fashion brand Tommy Hilfiger from London-based Apax Partners APAX.UL in a $3 billion cash-and-stock deal to boost its presence in Europe and Asia.

The deal would make Phillips-Van Heusen one of the largest suppliers of menswear to U.S. department stores, and will keep Hilfiger founder Tommy Hilfiger in his role as principal designer for the clothing line.

It also will add yet another high-profile name to PVH’s lineup, home to Izod and Calvin Klein. PVH also distributes menswear under labels such as Kenneth Cole New York, Michael Kors, Donald Trump and DKNY.

News of the deal boosted Phillips-Van Heusen’s shares about 10 percent, although both Moody’s Investors Service and Standard & Poor’s said they may cut their ratings on the company, citing the debt it will take on to fund the deal.

The deal would mark an end to London-based private equity firm Apax’s plans for an initial public offering for the iconic brand which it had bought in 2006 for $1.6 billion.

Private equity firms have been increasingly able to exit investments as the economy and markets have stabilized. Taking companies public has been more problematic.

Apax made 4.5 times its investment on the deal and will hold about 7 percent of the stock in PVH after the deal, a source familiar with the situation said.

“The deal certainly makes sense and that can be seen from PVH’s share price. A lot of people out there see that although it is quite a costly acquisition, they are still getting it at quite a low price,” IBISWorld analyst Toon van Beeck said.

At an estimated valuation of 8 times trailing earnings before interest, taxes, depreciation and amortization, “the price seems reasonable and the deal makes strategic sense to us,” Morningstar said in a research note for investors.

Tommy Hilfiger has spent the last few years trying to undo the damage from shifting its focus to a more mainstream group of buyers. It suffered years of sales declines after its logo-heavy designs helped make it a staple of urban streetwear, but alienated more affluent customers. Now, the company is expanding more quickly abroad than in the United States.

“It’s an opportunity to really revamp Tommy Hilfiger, which was such an iconic brand in the 90s and has somewhat died,” van Beeck said.

“I don’t think Apax Partners did enough with the brand, but Van Heusen is more familiar with menswear,” said Donna Reamy, associate professor at the department of fashion design and merchandising at Virginia Commonwealth University in Richmond.

Hilfiger CEO Fred Gehring said the PVH deal makes sense despite Apax’s earlier plans to take Hilfiger public.

“When you have a strategic sale, the norm often is you also lose a little bit of your identity in the process. PVH on the other hand in the transaction with Calvin Klein seven years ago has demonstrated how it can be done differently,” Gehring told Reuters in an interview.

Gehring will remain as chief executive, join the PVH board and take on international operations for PVH.

PVH expects the deal to boost earnings by 20 cents to 25 cents a share, excluding items, in the current fiscal year.

It also said the deal would add 75 cents a share to $1 a share in the next fiscal year, ending January 29, 2012.

Private investment firm Blue Harbour Group, which owns about 1.5 million Phillips-Van Heusen shares, said it was “very supportive” of the deal.

There is “potential for the stock to move further up from the move we’ve seen today,” said Michael James, a senior trader at Wedbush Morgan in Los Angeles.

FAIR PRICE

Phillips-Van Heusen will pay $2.6 billion in cash and $380 million in common stock for Tommy Hilfiger.

Phillips-Van Heusen expects to use $3.05 billion in debt, $385 million in cash, $200 million in preferred stock and $200 million from a common stock offering to finance the deal and refinance other debt.

The company is paying “a very fair price for such a powerful brand,” PVH Chief Executive Emanuel Chirico told Reuters in an interview. It expects $300 million in annual cash flow, and plans to pay off $200 million in debt in 2011.

The deal would not alter PVH’s relationships with its other brands and licenses, he said.

The company sees annual cost savings of $40 million from the deal and expects to close it in the second quarter.

According to Bloomberg, “the purchase will accelerate revenue growth  to as much as 8 percent, helped by Amsterdam-based Tommy Hilfiger’s European operations, Phillips-Van Heusen Chairman and Chief Executive Officer Emanuel Chirico, 52, said in an interview today. About two-thirds of Tommy Hilfiger’s revenue comes from outside the U.S. The combined company will have annual sales of $4.6 billion.

“PVH could extend some of their brands into Europe,” Chris Kim, an analyst at JPMorgan Chase & Co. in New York, said in a telephone interview. “In the domestic market, PVH has better expertise in the mass channel and the department-store sphere, and would help them manage better the Tommy Hilfiger brand.”

Adds to Earnings

The proposed acquisition is the biggest announced by a U.S. clothing retailer or manufacturer in the past 10 years, according to data compiled by Bloomberg. It’s also the eighth- biggest announced by any U.S. company this year, the data show.

Tommy Hilfiger will add as much as 25 cents a share to Phillips-Van Heusen’s 2010 earnings and as much as $1 next year, excluding one-time costs to finance the deal and integrate the companies, according to the statement. Phillips-Van Heusen’s revenue grew 2.8 percent in the year ended Feb. 1, 2009.

Phillips-Van Heusen rose $4.66, or 9.8 percent, to $52.40 at 4:15 p.m. in New York Stock Exchange composite trading, the biggest gain in almost a year. The shares have risen 29 percent this year, giving the company a market value of about $2.7 billion, less than what it’s paying for Tommy Hilfiger.

Phillips-Van Heusen plans to sell its Arrow and Izod brands in Europe, probably through department stores, Chirico and Tommy Hilfiger CEO Fred Gehring said in the interview today. The company will expand existing Tommy Hilfiger categories at Macy’s Inc. — the exclusive department-store seller of Tommy Hilfiger sportswear — and add new ones, the executives said.

Macy’s Sales

Phillips-Van Heusen sells $300 million of its goods at Macy’s, the second-largest U.S. department-store chain, and Tommy Hilfiger sells $200 million, Chirico said.

“The Tommy acquisition really fits all our strategic targets for an acquisition,” Chirico said. “It’s a very strong global brand, with a strong international platform, that will be immediately accretive to earnings.”

Tommy Hilfiger first sold shares in 1992 and increased annual revenue to almost $2 billion in 2000 after its American- themed red-white-and-blue-splashed clothing became popular internationally. It now has 1,000 namesake stores worldwide.

The company was started in 1985 by its Elmira, New York- born namesake designer. Hilfiger, who opened a boutique while still a high-school student, will remain the principal designer, Phillips-Van Heusen said. Gehring will stay on as Tommy Hilfiger chief executive officer.

Deal Financing

Phillips-Van Heusen plans to sell shares worth $200 million to help pay for the takeover, issuing about 8.7 million, or 13 percent of its outstanding stock, to Apax and other Tommy Hilfiger shareholders. The company said it plans to get $2.45 billion of senior secured debt, including undrawn revolving credit of $450 million, $600 million of senior unsecured notes and $200 million in preferred stock, and about $385 million of cash to fund the deal and refinance $300 million of bonds.

Barclays Capital and Deutsche Bank AG are global debt coordinators for the transactions, according to the statement.

Phillips-Van Heusen’s bid values Tommy Hilfiger at 1.3 times sales and 10.7 times earnings before interest and taxes, known as Ebit. Tommy Hilfiger revenue in the year ending March 31 may total $2.25 billion, about 34 percent of that in U.S. markets, and Ebit will come in at $280 million, according to the statement.

Peter J. Solomon Co is the lead financial adviser to PVH. Barclays Capital, Deutsche Bank, Bank of America Merrill Lynch, and RBC Capital Markets also acted as financial advisers and will arrange financing for the deal.

Credit Suisse acted as lead financial adviser to the Tommy Hilfiger Group and as sole adviser to Apax Partners.”

Private Equity Firms Look for Retail & Consumer Buyouts in U.S. and Abroad

Thursday, March 11th, 2010


As pricing for junk bonds and leveraged loans falls, more private equity firms are looking at U.S. and emerging market retail opportunities for buyouts.  T.H. Lee Partners just purchased CKE restaurants in February and Indian and Brazilian buyouts have been closing recently as well.  As the rest of the world grows faster than the U.S. and Europe, there will be more and more buyouts overseas.

According to Mr. Kelly and Ms. Coleman of Bloomberg, private-equity firms looking to buy retail and consumer companies said they’re now able to finance deals and pay reasonable prices after the credit crisis and global recession triggered a buyout slump.

“It feels like it’s a little bit of Goldilocks now,” Alex Pellegrini, a New York-based partner with Apax Partners LLP, said today. “It feels just right.”

Buyout managers are getting back to business after the global credit crisis that began in 2007 froze them out of buying companies or selling what they owned. About $12.9 billion worth of private-equity deals have been announced in the past three months, compared with $2.5 billion in the same period a year earlier, according to data compiled by Bloomberg.

“The last couple months would suggest that people are getting active again,” said John Howard, chief executive officer of New York-based Irving Place Capital Management LP, noting his firm hasn’t made a retail investment in four years. “We’re seeing more real opportunities.”

Financing from Wall Street banks is returning for some deals after financial institutions suffered losses of $1.7 trillion since the onset of the credit crisis. Howard said deals require investors to contribute more of their own cash and less borrowed money, which means he and other managers are most interested in targets they think will boost sales and profits.

U.S. comparable-stores sales climbed 4.1 percent in February, topping the 3 percent growth estimate by researcher Retail Metrics. It was the sixth-straight monthly gain and the biggest in more than two years.

‘Quality Companies’

A stabilizing economy is helping broaden the number of potential targets beyond distressed companies that had no choice but to sell during the recession, said David Oddi, a co-founder of New York-based Goode Partners LLC.

“Over the past couple years, the best businesses have had the luxury of sitting on the sidelines,” Oddi said. “What we’re seeing now is more of the quality companies return to the market.”

The private-equity executives spoke on a panel moderated by Les Berglass, founder of executive-search firm Berglass + Associates, at Bloomberg’s headquarters in New York.

Thomas H. Lee Partners LP agreed last month to buy CKE Restaurants Inc., the owner of Carl’s Jr. and Hardee’s fast-food chains, for about $619 million cash and assuming about $309 million in debt. CVC Capital Partners agreed to buy the retail unit of PT Matahari Putra Prima for 7.2 trillion rupiah ($772 million) in January.

Carlyle Group, the world’s second-biggest private-equity company, is among the firms looking beyond the U.S. for deals, said Sandra Horbach, who runs the Washington-based firm’s consumer and retail group from New York.

Dunkin’ Donuts

“There are certainly some countries today that have more robust growth than we’re seeing here in the United States,” Horbach said, noting the firm’s purchase of Brazilian tour operator CVC Brasil Operadora e Agencia de Viagens SA this year.

Carlyle also is poised to take advantage of stabilized capital markets to sell some of its investments, Horbach said. The firm is among the owners of Dunkin’ Brands, the operator of the Dunkin’ Donuts and Baskin Robbins chains, which is a likely candidate for an initial public offering, Horbach said.

“That’s a company that we know will go public at a very attractive valuation and it’s just a question of timing,” she said.

Buyout-backed companies including Dollar General Corp., owned by KKR & Co., have successfully gone public. Shares of the Goodlettsville, Tennessee-based discount retailer have gained almost 20 percent since they were sold in an IPO in November.

Strategic Acquirers

Private-equity firms may more often reap profits from consumer-focused investments by selling them to other investors or to larger companies, so-called strategic acquirers, rather than selling them to the public, Horbach said.

Shifting out of a defensive mode into a mindset of growing, and eventually selling companies, has private-equity owners looking to hire top executives. Berglass, the executive-search executive, said his business has increased 50 percent since last June. It’s a signal that things are picking up, he said.

“Every time the economy has dipped, we find ourselves the first ones coming back,” Berglass said.