Private equity firms might be more cautious — tiptoeing up to deals instead of strutting — but the big money players are still very much in fashion.
While some investors are kind of stuck in the sector, left with bets on brands they haven’t been able to cash out, others are charging to the fore, looking to jump onto the next big thing. Witness investment giant Advent International, which bought a majority stake in Zimmermann last year at a valuation that reportedly topped $1 billion.
Despite some dealmaking in the background, a private equity backlog has been building up in fashion. Financial investors usually look to buy into a business, help rev it up and then flip the investment.
But whether it’s the pandemic, a tepid market, a lack of buyers or something else, many fashion companies find they’ve had the same private equity backers for much longer than the three to five years that is typical.
In a global study for WWD, Dealogic found at least 46 fashion companies that have had private equity investments for longer than five years — from Reformation at five years to Corneliani at eight years and Tory Burch at 11 years.
That backlog creates a certain pressure that could help more deals get done.
“Every year that they hold the company, they’re going to pay the debt cost and it lowers their returns,” said Scott Markman, founder and president of MonogramGroup, which specializes in branding at private equity portfolio companies. “Loosely, they’re trying to double, triple the money they plunk down. When they take the cost to run the company and the cost of debt to take it out, what do they get back?
“The clock is ticking the whole time and it gets into that sort of fifth year and all of a sudden the investors are like, ‘We’ve got to get our money back,’” he said.
It’s an approach that does not always jive with fashion, which Markman described as a “third rail” for private equity companies without a specific expertise in the industry.
“The world of fashion is fickle,” he said. “What’s the risk profile? What skill set do we have to pursue that in terms of manufacturing and distribution and marketing synergy and all that stuff?”
But for the stylish and the brave, fashion dealmaking just might perk up again if the market continues to stabilize and, fingers crossed, the U.S. presidential election concludes smoothly.
In addition to the companies sitting in private equity portfolios, some new brands could be coming on the market.
Tapestry Inc. is already said to be shopping Stuart Weitzman and could be looking to make other deals now that its $8.5 billion buyout of Capri Holdings has been held up on antitrust grounds and is likely off. And Capri could look to sell off Versace and Jimmy Choo, while its Michael Kors brand is seen as a candidate for a private equity-backed buyout and turnaround.
“There’s going to be lots of [mergers and acquisitions] activity in the market in the next 12 to 18 months just based on where companies are,” said consultant Nora Kleinewillinghoefer, a partner in Kearney’s consumer practice who focuses on apparel, lifestyle brands and luxury.
“This year, for the first time, everybody agrees that we’re fully out of COVID[-19] and brands are at a much more steady state,” Kleinewillinghoefer said. “There’s also a bit more predictability.
“A lot of brands that had that more steady growth that could have been accelerated by [private equity] went through an absolute roller coaster in the last four or five years,” she said. “Now that’s settling.”
Fashion might be about romance, but private equity is much more about math.
“It’s always an equation,” Kleinewillinghoefer said. “The clear curve of what the expectations are, returns, their models — and when those models can’t be predicted, it’s too risky of an acquisition to make.”
If the market is getting back to a point where investors can run fashion companies through their models and get results that they’re willing to bet on, it could be that at least smaller deals will start to come together.
Sonia Lapinsky, partner and leader of fashion retail at AlixPartners, said: “If it comes back, it’s going to be with these smaller, much more innovative brands that are really getting major consumer attention quickly and growing like crazy. It’s been a slow simmer for such a long time.”
Many of the big private equity companies that played in fashion — like Carlyle, which once bought and sold Supreme — have gotten out of the consumer space or put it on the back burner.
“The performance of retail over the last few years, outside of luxury, is one of the biggest problems, it’s just been so underwhelming,” Lapinsky said. “And even if [private equity owners] can work their magic and make some improvements, they can’t necessarily…get the multiple that they’re looking for” when they go to sell.
“There have been a lot of cases where they just can’t grow them enough to make an IPO possible, where a few years before that was the playbook,” Lapinsky said. “Now maybe you hand it off to another [private equity firm] but you’re not going to get what you thought.”
One example is Golden Goose, which in 2020 was acquired by Permira and was just about to go public this summer when the process was pulled given market volatility.
Now the luxury sneaker maker is again among the private equity-owned fashion companies looking toward the future.
Here, a look at brands that have taken money from private equity.
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John Varvatos Enterprises
Image Credit: Courtesy of John Varvatos U.S. — Apparel
Backer: Lion Capital
Investment date: April 2012
The Lyndon Lea-led Lion Capital bought a majority stake in the rock ‘n’ roll-tinged John Varvatos in 2012 from VF Corp. But as the business was preparing to celebrate its 20th anniversary, the coronavirus hit hard, pushing the company into bankruptcy. Lion retained ownership with a $97 million court-supervised deal.
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Tory Burch
Image Credit: Kelly Taub/WWD U.S. — Women’s designer fashion
Backers: General Atlantic, BDT and MSD Partners
Investment date: December 2012
General Atlantic and BDT stepped in and took minority positions in Tory Burch as the business was growing quickly, but the shareholder base was in upheaval. The designer was embroiled in a bitter legal battle with her ex-husband, Chris Burch, over the competing C Wonder business he started and the sale of his portion of Tory Burch. Lately, there have been rumblings that the investors could step back out. Last year, the company was said to be working with Morgan Stanley to explore its options.
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Corneliani
Image Credit: MAX MONTINGELLI/SGP Italy — Men’s apparel
Backer: Investcorp Holdings
Investment date: June 2016
Bahrain-based Investcorp scooped up a majority stake in Corneliani just as menswear was heating up. The deal also settled some backroom tensions as cofounder Carlalberto Corneliani said the acquisition put “different strategic visions” between family members to rest.
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Tasaki & Co.
Image Credit: Courtesy Japan — Jewelry and silverware manufacturing
Backer: MBK Partners
Investment date: May 2017
MBK bought Tasaki with the company’s management for 31.5 billion yen, marking the second time the private equity company bought the business. This year, media reports suggesting the business was going to be sold stirred up the Justice for Myanmar group, which highlighted “Tasaki’s business partnership with sanctioned entity Myanmar Pearls Enterprise.” The company did not respond to a WWD request for comment.
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Grupo Axo
Mexico — Women’s apparel retailing
Backer: General Atlantic
Investment date: October 2017
Grupo Axo, which operates Mexican retail stores for Calvin Klein, Coach and others, was headed toward an IPO in November 2016 — but hit pause given the jitters around Donald Trump’s first run for the White House. Instead, General Atlantic stepped in and bought a minority stake that valued the company at $425 million.
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Ganni
Image Credit: Vanni Bassetti for WWD Denmark — Women’s apparel
Backer: L Catterton
Investment date: December 2017
Shortly after L Catterton bought Ganni, the consumer-savvy private equity investor installed Andrea Baldo as CEO. Baldo established a retail presence for the brand, which has enjoyed double-digit annual growth. In April, Laura du Rusquec, the former deputy CEO at Balenciaga, was named as his successor.
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Mack Weldon Inc.
U.S. — Men’s underwear, T-shirts and socks
Backer: North Castle Partners
Investment date: July 2019
Brian Berger and Michael Isaacman founded Mack Weldon in 2012 as an online player specializing in men’s socks and underwear. The brand has been in expansion mode, rolling out stores and new product categories. Last year, it added jeans made with Ionic+ Silver woven into the fabric, which is intended to increase the time between washings. “It fits under our strategy to evolve from an ‘essentials’ brand into an ‘essential’ brand,” Berger said. “And denim is an essential building block of a guy’s wardrobe.”
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Reformation
U.S. — Sustainable apparel
Backer: Permira
Investment date: July 2019
Yael Aflalo, founder of the eco-friendly Reformation, sold a majority stake in the business to Permira in 2019, which was looking to supercharge the brand’s expansion. In May, the company opened its 44th store, a flagship near Rodeo Drive that filled out Reformation’s presence in its hometown. “We already have five other stores in Los Angeles, but the middle of the city was not covered,” said Hali Borenstein, the company’s chief executive officer. “And Beverly Hills is such a tourist destination.” The brand’s sales top $350 million annually.
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Golden Goose
Image Credit: Courtesy of Golden Goose Italy — Luxury sneakers and fashion
Backer: Permira
Investment date: July 2020
Permira bought Golden Goose in a competitive process in 2020 and, in June, was just about to cash in on that bet — but at the last second pulled the brand’s IPO given volatility in the European market. The process will be “reassessed in due course,” according to the company. In the meantime, Golden Goose has continued to grow. First-half sales this year grew 12 percent to 307.3 million euros.
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J.Crew Group
Image Credit: Courtesy Photo U.S. — Preppy fashion retailer
Backer: Anchorage Capital Group
Investment date: 2020
J.Crew Group was among the many retailers to succumb to the Chapter 11 process during the COVID-19 pandemic. The company emerged from bankruptcy with one of its former lenders, Anchorage Capital Group, as its majority owner. Business has been looking up lately. In September, Standard & Poor’s upgraded the outlook on the company’s credit rating to stable from negative and said second-quarter sales grew by 8.5 percent with 87 new Factory stores opening up in the past year.
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Everlane
Image Credit: Courtesy Everlane U.S. — Sustainable apparel basics
Investor: L Catterton
Investment date: September 2020
Everlane, which took an $85 million investment from consumer private equity giant L Catterton during the height of the pandemic, is both sticking to its sustainable knitting and looking to move forward. In October, the company hired the former PacSun and Fear of God executive Alfred Chang to be CEO. Chang works alongside founder Michael Preysman, executive chairman and climate lead for the company. Preysman said Chang “has a proven track record in transforming brands by delivering incredible products and scalable growth.”
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Axel Arigato
Image Credit: Courtesy of Axel Arigato Sweden — premium sneaker, ready-to-wear and accessories
Backer: Eurazeo
Investment date: November 2020
Axel Arigato was already in growth mode when the pandemic — and its more casual, stay-close-to-home ethos — propelled the sneaker and fashion brand higher with big online growth. To help keep that momentum, the company took a 56 million euro investment from Eurazeo. Lately, it’s been busy, opening new stores in London and New York and promoting Jens Werner to creative director. “In this next chapter, I look forward to harmonizing footwear, ready-to-wear, accessories, spatial design and all creative outputs to ensure everything exists within a cohesive universe,” Werner said in June.
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Breitling
Switzerland — luxury watches
Backer: Partners Group Holding
Investment date: October 2021
Breitling is well familiar with the world of private equity. The Swiss watchmaker was bought by CVC in 2017 which then sold control to Partners Group, starting in 2021. Georges Kern, CEO, said in April that being owned by private equity can make a business more flexible than it would be as part of a big luxury powerhouse.
“For the Breitling restart, it was the right thing to be with private equity,” Kern said. “It was also a huge motivation for us, as we are all investors. It’s a totally different way of working. We are partners and I’m not an employee. The investors wouldn’t make any decisions without me [and vice versa]. It’s the same for the senior management. For me, for my personality, it has been an amazing journey. I love what I’m doing, be it with CVC or Partners Group.”
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Khaite
Image Credit: Courtesy of Khaite U.S. — Designer apparel
Backer: Stripes
Investment date: March 2023
At a time when there was a gaggle of designer brands out testing the market and looking for backing, it was Catherine Holstein’s Khaite that sealed the deal in early 2023, linking with New York growth equity fund Stripes. The brand had just opened its first store, on Mercer Street in Manhattan. The investment has helped the designer continue that brick-and-mortar expansion with a new store in Dallas and doors set to open on Madison Avenue in New York and in Costa Mesa, Calif. Sales have crossed $100 million, bringing the American luxury brand to a new level.
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Zimmermann
Image Credit: Courtesy of Zimmermann Australia — apparel, leather goods
Backer: Advent International
Investment date: December 2023
Founded by sisters Nicky and Simone Zimmermann in 1991, Zimmermann has certainly pinged on the radar of fashion — and private equity. General Atlantic acquired a stake in 2016. Then Milan-based fund Just Style bought control of the brand in 2020. And last year, Advent International stepped in as majority owner, reportedly valuing the business at more than $1 billion. While the brand was already growing, Advent came in with plans to rev up its international expansion in existing markets and new markets, including Asia and the Middle East, while also building out the product assortment and strengthening the online business.
