By Thomas J. Ryan
Gildan Activewear, best known for its basic socks and t-shirts, is preparing to delve deeper into the fashion business after reaching an agreement to acquire the sometimes controversial American Apparel brand out of bankruptcy.
Under the deal released November 14, Canada-based Gildan will acquire the intellectual property rights related to American Apparel, along with “certain assets,” including some of its Los Angeles production and distribution operations and inventory, for $66 million in cash, officials said. With no plan to acquire any of American Apparel’s retail operations, Gildan will explore repositioning American Apparel as a wholesale brand.
Investors cheered the proposed deal, sending Gildan’s stock (NYSE:GIL) up nearly 5 percent following the news.
The move comes as American Apparel filed for bankruptcy protection for the second time in a little more than a year. Gildan’s offer could be topped in the upcoming bankruptcy auction. According to court papers filed in the U.S. Bankruptcy Court in Delaware, Gildan’s offer was the “highest, best and only viable bid” received in a three-month search.
Another possible acquirer in the active space is said to be Sequential Brands, which owns Avia, And1 and Heelys, as well as recently acquiring Gaiam’s yoga and fitness side of the business. Also said to be interested is Authentic Brands, which owns sports brands including Prince, Spyder, Tapout and Tretorn as well as fashion brands such as Juicy Couture and Judith Lieber.
Gildan said that barring a better bid emerging in bankruptcy proceedings, the closing of the transaction is expected to occur during the first quarter of 2017. As is customary, Gildan will receive a break-up fee and certain expense reimbursements if it does not prevail as the successful bidder at any auction.
Famed for trumpeting its made-in-the-USA business model and its sexually provocative advertisements, American Apparel offers more-fashionable items such as dresses, coats, jeans and knitwear but also carries a wide range of basic t-shirts and activewear.
“The American Apparel brand would represent a strong complementary addition to the company’s portfolio of brands,” Gildan officials in a statement. “The acquisition will create revenue-growth opportunities by leveraging Gildan’s extensive distribution network in North American and international printwear markets to further increase the brand’s penetration in the faster-growing fashion basics segments of these markets. In addition, with American Apparel’s strong heritage as a consumer brand, the company will evaluate potential wholesale opportunities for leveraging the brand within its Branded Apparel business.”
The acquisition would follow Gildan’s acquisitions of Peds Legwear in August 2016, Alstyle Apparel in May 2016 and Comfort Colors in March 2015. The company’s other owned brands include its namesake Gildan, Gold Toe, Anvil, Secret, Silks, Kushyfoot, Secret Silky, MediPeds and Therapy Plus. It also owns the U.S. sock license for Under Armour.
The move would also enable Gildan to double down on U.S. manufacturing. In a letter to Gildan employees obtained by Forbes, Gildan said a key component in the deal is retaining American Apparel’s manufacturing base, which is based primarily in Los Angeles. Gildan further noted that it has maintained operations in southern California that it acquired with the Alstyle Apparel acquisition.
American Apparel’s bankruptcy filing listed liabilities of about $215 million. The company had $497 million in net sales in 2015.
The filing was expected, as American Apparel missed the first of two payments to unsecured creditors as required under its previous Chapter 11 plan approved in January 2016. The company also recently moved to close about 83 international stores. American Apparel has lined up a $30 million debtor-in-possession loan to continue operations until a sale can be closed, according to court papers.
American Apparel has been hurt by general weakness being seen by many teen retailers, but also an over-aggressive expansion of stores and a sexual-harassment litigation tied to its former CEO and founder, Dov Charney. Paula Schneider guided the company through bankruptcy proceedings with a plan to soften its sexualized advertising and improve its product. However, she resigned in September amid struggles and rumored sales talks and recently joined Delta Galil. Chief Administrative Officer Chelsea Grayson moved up to take the CEO role.
With 110 stores in the U.S., American Apparel has dwindled in size from the time of its original bankruptcy filing, when it had about 8,500 employees at six factories and 230 stores worldwide.
Photo courtesy American Apparel
