SPACInsider contributors Anthony Sozzi and Sam Beattie this week compiled their three favorite potential SPAC targets in apparel. We look at why they are compelling and why each could be a fit for a blank-check merger.
The year 2020 was hell for apparel retailers, and summer 2021 is turning out to be not entirely peachy overall for SPACs. What the two sides have in common might make them a perfect fit at the moment.
Most retailers with a heavy brick-and-mortar presence took a major hit when lockdowns banned or dissuaded customers from their stores. With at least the possibility of the Delta variant renewing cautious shopping behaviors – if not provoking new restrictions – many private retailers have to be wondering how they would endure round two without financial help.
Come what may down the road, the initial reopening of the public square and office spaces has done wonders for apparel sales. As people have prepared to re-enter workplaces or public spaces in either upgraded attire (or expanded if the pre-pandemic digs no longer fit), retailers across the board reported surging sales in the first quarter of the year, with Target (NYSE:TGT) showing a 60% spike.
Apparel has also not typically been a mainstay of SPAC deals, but a big one came down the pike this week as Italian fashion shop Ermenegildo Zegna announced a combination with Investindustrial (NYSE:IIAC) July 19.
The opportunity for SPACs is two-fold. Many big brands need a boost to their balance sheets and could be considering the benefits of the public markets even if they have resisted listing in the past. Meanwhile, a number of ecommerce-centric brands actually saw boosts in sales during the quarantine as shoppers scrolled and splurged. These brands may see the moment as the perfect time to capitalize with an aggressive financial move.
As we found in our 1H-2021 Report, just nine of 24 sectors across SPAC deals were trading at or above $10.50 on average as the first half came to a close. It has also largely been a difficult two months for SPACs bringing deals to a close, so venturing into new territory could unlock some benefits.
For a repeat play of Investindustrial’s foray into the luxury apparel, Tory Burch may be the ticket. The entrepreneurial company generated just under $1.5 billion in revenue before the pandemic in 2019 and anticipated a drop to $1.2 billion in 2020.
Its pre-pandemic brick-and-mortar footprint of 315 stores across the globe went through the ringer and the company underwent significant efforts to re-locate to ecommerce. But, outside measures indicate the brand began recovering by late summer last year with the retreat in year-on-year sales shrinking from -41% in May 2020 to –4% in August 2020.
The company also continues to carry debt that will need to be addressed, including a $758 million revolver taken on in October 2020, but already had a rebound story ready to be told. The company’s namesake founder, Tory Burch, divorced Chris Burch in 2008, but married longtime LVMH (PA:LVMH) CEO Pierre-Yves Roussel in 2019. He took over as CEO of Tory Burch (the company) that year in time to weather it through the pandemic.
Tory Burch has raised $1.78 billion in outside funding to date, but the company had the self-confidence to buy out its private equity backer Tresalia Capital in 2018. If it wants to bring in outside money again, it is likely that it will want some independence along with it in a way that a SPAC deal can provide over private sources.
Ermenegildo Zegna posted similar near-term revenue figures as Tory Burch and secured an enterprise value of $3.2 billion in its SPAC deal. Assuming a similar valuation, KKR I (NYSE: KAHC) could be a potential fit with its $1.38 billion in trust and relevant sector experience. Its CEO and Executive Chairman Glenn Murphy has served as the chairman of Lululemon (NASDAQ:LULU)’s Board since 2018.
If a SPAC is interested in snapping investors out of a mid-year daze with a brand they recognize, a deal with Vineyard Vines could also do the trick. The company, which sports preppy East Coast styles, flirted with a potential listing in 2016, but found the pre-IPO fundraising market unwilling to support its desired valuation goals.
That conversation may have gone south, but it is a new world in 2021 with a host of SPACs to talk to that may see things its way. In the meantime, Vineyard Vines has kept its financials close to the vest and has only publicly disclosed backing from private equity group Bolur Holdings. But, Dun & Bradstreet estimated the company’s annual revenue at $1.5 billion with about 2,800 employees across all locations.
Whether its customers are going to be forced to stick to their boats amid a Delta upsurge or return to the office with some fresh-looking business casual, Vineyard Vines likely has some sales security in its core Northeastern market.
The brand nonetheless has strong traction along the Gulf coast as well, and could be on the radar of Landcadia IV (NASDAQ:LCA) and its CEO Tilman Fertitta. Fertitta may be diagnosable for SPAC fever, having merged Landcadia II with the internet division of his casino group Golden Nugget Online Gaming (NASDAQ:GNOG) before announcing a deal to combine the larger group with FAST (NYSE:FST) in February.
But, there is still plenty for the many sustainability-focused SPACs to choose from in this sector as well.
Outdoor adventuring brand Patagonia is one of the largest private apparel companies that has not yet been bought out or listed. It also happens to be a certified B-corp with high scores for its impact on sustainability and environmental targets.
The brand, popular with hikers and camping aficionados, had revenues estimated at $800 million in 2019. Its founder, Yvon Chouinard, has traditionally carved an independent path. But, at age 82, he may be willing to loosen the grip and deal with a SPAC team he favored as a succession plan.
An investment in Patagonia by a sustainability SPAC could also potentially serve as a force multiplier across the ESG space. Patagonia has managed its own venture capital arm, Tin Shed Ventures, since 2013. It has made at least 10 investments in eco-friendly companies, and SPAC cash could accelerate its efforts while smoothing over the balance sheets of a rough year in apparel retail.
Patagonia could be an enticing target for AEA-Bridges Impact (NYSE:IMPX) which raised $400 million in its September 2020 IPO and is led by a team that has seen a wide variety of angles on sectors investing with their sponsor AEA.