By Richard Collings
Michael Kors, the New York-based apparel business, is likely not considering a sale or an IPO, it is understood. At least for the time being.
The company, through a spokesperson, declined to comment on the matter, or on Michael Kors’ business strategy, as it is privately held and does not wish to reveal to its competitors any information that is proprietary.
In the summer of 2007, it was thought that the company could be gearing up for a liquidity event once its retail strategy matured, based on the early success of the opening of 11 Michael Kors boutiques, with plans to launch another 40 over the next two years.
That fall, Fortune Magazine speculated that Michael Kors could be targeted by Global Brands Acquisition Corporation, a special purpose acquisition company, or SPAC, which involved Lawrence Stroll and John Idol, who are also investors in Michael Kors.
A number of companies have become publicly held entities via a SPAC, notably American Apparel.
Yet, since the recession began and the financial crisis unfolded, valuations have dropped and credit has tightened, making mergers more difficult to execute, according to industry observers.
An industry source who is an expert on merger and acquisition-related transactions, but has no specific knowledge of Michael Kors, nor has a relationship with that entity, said it would likely not be advantageous for an apparel company in this climate to pursue either a sale or an IPO.
A company such as or similar to Michael Kors would not be valued at what it was a year ago, nor have the valuation it will probably achieve a year from now, the source said.
And if third party financing is required, as might be the case if Michael Kors were to be acquired by a SPAC such as Global Brands--becoming public via that route, it might face certain challenges. Credit is easier to come by, but it’s still difficult, the source said.
American Apparel, following its merger agreement with Endeavor Acquisition Corporation in December of 2006 in a deal that valued the company at approximately $382 million, secured debt financing of $41 million, to cite one example.
While credit is limited and multiples are low, time is running out for some SPACs. Shareholders in Global Brands must approve any deal and may be content to let the cash raised accrue interest and allow the SPAC to ultimately liquidate, rather than agree to a risky acquisition in this economic environment, the source added.
An article posted by Seeking Alpha noted that SPACs, which have not yet acquired any businesses, have outperformed those which have done a deal. Seeking Alpha wondered if a number of SPACs that have not completed a deal, including Global Brands, could end up folding. SPACs have 18-to-24 months to close a deal after being formed, or they must return the money they raised.
According to a filing with the SEC, Global Brands has the capacity to operate without bringing a deal to fruition until
The company in its SEC filing said it did not expect to raise additional funds following its initial offering unless it were to acquire a business, in which case Global Brands would do so through a private offering of debt or equity securities if such funds were required.
Michael Kors initiated its retail strategy in part because of the consolidation of department stores and within the retail sector in general. Having independent boutiques was also a broader effort at creating a more complete lifestyle brand.
Industry experts have long observed that apparel companies attempting to do business in the
Michael Kors’ retail strategy, focusing initially on regions such as the West Coast, the Northeast and
Today, it has seven Michael Kors Collection Boutiques, 42 Michael Kors Lifestyle Stores, 42 Michael Kors Outlet Locations, and 16 Michael Kors International Stores, according to the company’s Web site.
It is understood that the company has proceeded with planned store openings despite the recession.
Internet-based transactions, however, have been described as a “slow climb” for Michael Kors, with only 5% of its sales at the department store chain Macy’s, for example, conducted through that retailer’s Web site, it is also understood. But despite this, the company has made strides, developing its own Web site for online shoppers to directly buy from the brand.
In 2007, it was thought that the company generated $400 million in revenues from its wholesale business, not counting sales at its boutiques. Fortune Magazine reported in late 2007 that its sales to department stores were about $100 million.
The New York Times reported that Michael Kors expected to achieve $600 million in revenues via its wholesale business in 2008, 85% of which was generataed by the sale of handbags, shoes and accessories, though it was not clear if that figure could have included turnover generated by its own stores. It is also unclear as to how the recession has affected the company’s top-line.
In addition to its expanding chain of stores, Michael Kors, the designer for whom the company and the brand is named, has appeared as a regular on the television show “Project Runway,” becoming a household name.
And the designer’s creations have famously appeared on First Lady Michelle Obama, cementing the company’s current role as an arbiter of popular taste.
Kors had arguably one of his best runway presentations in some time, in a show that featured clothes for the 2009 fall and winter season, which was lauded by the fashion press.
It was previously reported that the designer owns a 15% stake in his company. Silas Chou and Stroll were said to have bought an 85% stake in the company in 2003.
Global Brands stock last traded at $9.83 per share as of
Links To Relevant Content:
Seeking Alpha Discusses SPACs
Fortune Reports On Global Brands
The New York Times Profiles Michael Kors
Global Brands' June 15, 2009, 10-K Filing
Listing Of Michael Kors' Retail Locations
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