This article is provided to FT.com readers by mergermarket—a news service focused on providing actionable, origination intelligence to M&A professionals. www.mergermarket.com
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Apparel companies from Hong Kong, China and Japan are currently looking to acquire US apparel brands this year, according to executive interviews conducted by mergermarket.
Acquirers, either previously reported or cited in this article, could include listed Hong Kong-based entities Golife Concepts, Li & Fung, Lawsgroup, Bosideng International Holdings and Esprit Holdings, as well as listed Tokyo-based Fast Retailing, among others.
Potential US targets could include, according to prior reports, private New York-based apparel businesses such as Michael Kors, Anna Sui, Catherine Malandrino or Tuleh, and private Vernon, California-based AZ3 which makes clothing under the BCBG Max Azria and Herve Leger brands, as well as private San Diego-based Gordon Rush and listed Florida-based Perry Ellis, to name a few.
Heinz Krogner, chief executive and chairman of Hong Kong-listed international apparel company Esprit Holdings, had said last year that it was looking for acquisitions, though no deals were made last year. Krogner blamed this shortcoming on private equities which inflated the value of targets in the sector. Esprit remains interested in acquiring companies and developing them to make it more profitable.
“We will never consider cheap brands,” said Krogner, adding that “I would take any beautiful girls (good targets).” He had previously shown interest in luxury brands such as Jil Sander, Escada, Puma and Donna Karan, according to media reports.
Chief financial officer John Poon explained that according to Esprit’s acquisition strategy, potential targets must carry premium brands that have synergies with its existing products. Esprit has earmarked as much as USD 1bn for acquisitions of apparel makers in the US or Europe, though this figure could rise on a case-by-case basis.
Meanwhile, Golife Concepts, the Hong Kong-listed lifestyle and apparel company, is also keen to acquire more luxury lifestyle brands, including apparel and accessories manufacturers in the US or EU, according to executive director Carl Gouw, and could eye targets such as Tuleh and Candela NYC.
Fast Retailing also had previously told this news service that acquisitions in the US were certainly possible in the near term. The company is interested in conducting large-scale acquisitions of retailers that have sales of over JPY 100bn (USD 932.8m), and has a M&A war chest of up to JPY 400bn after its failed attempt to acquire Barneys New York from listed New York-based Jones Apparel Group for USD 950m.
In its search for companies with established fashion brands, Fast Retailing could eye large US-based industry peers such as listed New York-based J. Crew to add to their retail network, an analyst said, adding that listed San Francisco-based Gap and its subsidiary Banana Republic could also be of interest. J. Crew and Gap have market caps of USD 2.71bn and USD 14.07bn, respectively.
Another analyst mentioned that Fast Retailing’s less than 1% market share of the US apparel sector as the main reason it should pursue to acquire a company like J. Crew should it go up for sale. The New York-based retailer’s largest shareholder is private equity firm TPG. Fast Retailing has a market cap of JPY 827.4bn.
A sector analyst had suggested that more US-based companies would consider mulling investors for cash injections, thereby encouraging overseas companies to acquire in the US.
An industry banker said that a number of deals are likely to close within the next twelve months, and noted that talks are already underway between prospective Asian-based buyers and US targets, though he declined to divulge which companies.
An industry executive said that Asian acquirers are seeking companies with brands, not infrastructure, as the prospective buyers already have their own factories for apparel production in place.
A second industry executive said that there should not be any hurdles in the acquisition of US brands by Asian manufacturers, as brands lauded by critics and editors, such as listed New York-based Ralph Lauren and listed New York-based Phillips-Van Heusen’s Calvin Klein, manufacture a high percentage of their products in those regions.
An industry source said that US-based companies are very good at branding and marketing, an area in which Asian-based firms are lacking, but because Asian companies are excellent at sourcing, such cross-border deal-making would constitute solid matches.
The industry banker explained that capital rich Asian-based entities hold a great deal of US dollars that need to be repatriated back to the US, as well as a cheaper dollar and lower, or more favorable, valuations. There is also the added advantage of prospectively owning brands, and not simply producing them, creating an environment ripe for deal-making.
The economic situation has changed with downturn of the global economy, bringing more acquisition opportunities as prices of companies fall, an industry player said. Since Asia has not been impacted as much as the US by this downturn, it is an ideal opportunity for Asian international players to take part in the consolidation.
Private New York-based companies Candela NYC and Calypso Christiane Celle, also had recently put themselves up as potential targets, as both are looking for strategic investors, according to prior reports.
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