In 1993, after gaining brand building experience by launching Spy Optics – which is now a public company of its own – Beaver Theodosakis started a new apparel company with his wife, Pam, and business partner, Demian Kloer. The group named the company after a 5,000 year-old Sanskrit word meaning ‘breath,’ and prAna was born. The climbing apparel company quickly gained recognition as top climbers like Boone Speed and Chris Sharma signed on because they were “tired of looking like Star Trek characters” when they were at the crags. In a fashion era when Lycra tights were more common on climbers than hoodies, prAna offered something different, and while they may not have coined the term “from bouldering to bar” they certainly created the concept.

Now, after building the brand into an international, multi-million dollar company, prAna has enter into an acquisition agreement with fashion apparel powerhouse Liz Claiborne, Inc. Rumors about the deal began at OR Summer Market when a scorned suitor leaked information to the financial community about an impending sale. Despite rumors to the contrary, the deal was just finalized late last week.

The purchase price is currently estimated to be $34.4 million; however, this represents just over 60% of the total consideration that may be paid for the company. The initial payment is made up of approximately $32.5 million in cash and stock plus the retirement of debt, estimated to be roughly $1.9 million at closing. Liz Claiborne will make additional pay-outs to prAna based upon a multiple of the business' earnings in fiscal years 2008, 2009, and 2010. In the end, the total purchase price could amount to roughly $54.2 million. prAna is expected to generate annual net sales of approximately $30 million in fiscal 2005.

According to Liz Claiborne, the company has acquired a number of independent apparel companies and has a “proven track record” for preserving the brand's identity and autonomy and allowing business owners to drive the business and front-end operations. These brands include companies like Lucky Brand Jeans, Juicy Couture, Sigrid Olsen, Mexx, and more recently, the acquisition of the Enyce urban lifestyle brand from Fila.

prAna represents Liz Claiborne's first step into the outdoor apparel and lifestyle business.
In an exclusive interview, Paul Charron, chairman and CEO of Liz Claiborne, told The B.O.S.S. Report that the company has been looking at the active space for a few years now.

“We have a portfolio of brands that address different market segments and we constantly look at areas where we are under penetrated or have no penetration and we find a way to play in these areas, said Charron. “The Active area is a space we like. We also have a management team at prAna we respect and like in Pam, Beaver, and Demian and prAna sells to retailers we like, both the large and the small – retailers where we don’t do any business currently.”

Charron said he sees no reason why the company cannot become a $100 million brand, but their first order of business is for Claiborne to understand the culture behind the brand and to maintain its integrity. Charron also said that the company will continue to look at the outdoor space for potential acquisitions, but is taking a broader view of the term Outdoor. “Is climbing, mountain biking and hiking outdoor? Yes, definitely,” he said. “Is ski, surf, skate outdoor? Yes, it is. Is Yoga outdoor? Well, not really but the lifestyle carries over.”

prAna’s co-owners, Beaver Theodosakis, Pam Theodosakis, and Demian Kloer are already looking at several different opportunities presented with the acquisition, including access to Claiborne’s state-of-the-art design studio, potential sourcing opportunities, and most importantly, international expansion opportunities. “Pam and I are really designers at heart,” Theodosakis told BOSS. “They have a design center that is incredible, and we’ll have access to an entire staff dedicated to trends. Our line is going to be amazing.”

Theodosakis also said that the company will be changing its business model in the international arena, with more focus on expanding in Europe and moving beyond the current international distributor model to build a warehousing, sales, and marketing presence in the European market. This is clearly the biggest opportunity for top and bottom line growth at prAna.

The company’s sourcing structure is currently slated to remain as-is through the 2006 season, but Theodosakis remains excited about the potential. “We still make about 65% to 70% of our products in the U.S., and this is the great thing – we have access to the international sourcing structure, but if our factories are better, there’s no need to change. Sure we’re a business, and if we can, we’ll cut costs, but we won’t compromise the product,” he said.

Claiborne has a very solid track record in its human rights activity at overseas factories. As one of the founding members of the Fair Labor Association, the company has worked to eliminate sweatshop conditions and insure fair wages in many previously unregulated factories. The company also has a track record of allowing companies the freedom to create their own sourcing. Juicy Couture, an L.A. fashion brand, grew from a $45 million company to a $300 million brand under Claiborne, and still manufactures 95% of its product in L.A. and has maintained it original distribution.

Claiborne’s management team has experience beyond the vendor side as well, with several successful retail operations accounting for roughly 20% of the company’s revenue. Theodosakis sees some opportunity here as well.

“It’s been something we’ve talked about and looked at for ten years,” he said. “There’s nothing confirmed, but if we do something it will be different. We’re not really looking at retail, but something more like a Satellite Branding Hub – a place where the community can gather and learn about climbing, yoga, bouldering, and the lifestyle prAna represents – a place where we can host product launches, get people excited about the brand, and drive traffic to our existing retailers. Whatever we do, it’s going to be different and it’s going to go beyond adding dollars to the bottom line.”

The relationship between the two companies has already begun, with Liz Claiborne adopting prAna's Natural Power Initiative. Claiborne’s contribution to the initiative will substantially exceed prAna’s initial commitment, making the overall NPI benefits far more significant. The combination of Liz Claiborne and prAna under the NPI will help prevent the emission of 57,270,000 pounds of greenhouse gases, or the equivalent of removing 5,412 cars from the road, with wind power purchased through 3 Phases Energy Services, a Green-e certified wind power provider.

When asked how he would respond to criticism from the industry over this non-industry deal, Theodosakis said, “We had the opportunity to sit down with some of the most iconic brands in our industry and other industries, but once we got inside we thought, ‘that’s not how we want to do business.’ The process with Liz Claiborne was so fair. Yes, it’s a public company. Yes, we need to grow. But there are a million ways to grow. It sounds cliché to say this, but it’s not about adding zeroes to our bank accounts. It’s about leaving a legacy… There were a total of six companies we sat down with, and Liz Claiborne had the fourth highest offer. There were three higher – some much higher.”

>>>While the editors at The B.O.S.S. Report can already hear the criticism from some corners of the industry, Claiborne seems like a good fit for one of the brands that brought style and new thinking to the outdoor industry…