Sequential Brands has agreed to sell its active division brands, including Gaiam, Avia and And1, to Galaxy Universal for $333 million. Galaxy will serve as a stalking horse bidder to explore higher bids for the active segment as part of Sequential Brands’ bankruptcy filing.
Sequential’s active division also includes the SPRI line of fitness equipment and the Swisstech luggage line. Other brands owned by Sequential include Jessica Simpson, William Rast, Joe’s Jeans, and The Franklin Mint.
Galaxy, acquired by Gainline Capital Partners in early May, owns and licenses several footwear brands. Licenses include And1 and Avia, London Fog and Justice. In 2000, Galaxy acquired Apex Global Brands, which includes Hi-Tec, Magnum, Interceptor, Cherokee, and Tony Hawk.
On Tuesday, Sequential Brands Group Inc. announced that it had started voluntary Chapter 11 proceedings in the U.S. Bankruptcy Court for the District of Delaware. The bankruptcy petition listed total assets of $442.8 million and liabilities of $435.1 million. Sequential is a brand management company that acquires and then licenses brands to wholesale and direct-to-retail partners. It has 19 people on its payroll.
In June, reports arrived that Sequential was close to reaching a deal with lenders to file for bankruptcy protection to divest its portfolio of brands or to sell the company.
In an affidavit filed with the Court, Lorraine DiSanto, Sequential’s CFO, said in Fall 2019, with revenue down compared to in prior years and having received unsolicited interest from third parties for the purchase of certain assets, it began to consider a broad strategic review focused on maximizing value. It hired Stifel, Nicolaus & Co. to assist with the review.
By November 2019, the company explored a sale of its activewear division assets. DiSanto added, “The formal sale process, however, was launched in the first week of March 2020, just as the World Health Organization had declared the outbreak of COVID-19 as a global pandemic. In addition to affecting the company from an operational standpoint, the pandemic partially disrupted the company’s ability to market its assets fully.”
Nevertheless, Sequential continued to explore the sale of its assets while also evaluating all of the company’s brands and potential transactions.
By the fourth quarter of 2020, with the continuing decline in revenues, Sequential was close to breaching its financial covenants and began receiving waivers from its lenders starting in November 2020. In late 2020 and early 2021, with assistance from Stifel, Sequential engaged in an overall marketing process to sell the company or the divestiture of one or more existing brands while also evaluating potential transactions, including raising new debt and/or equity financing. Multiple waiver agreements were required to overcome defaults to its credit line.
Sequential said it could consummate several value-maximizing brand sales over the months before the bankruptcy filing that helped pay down debt. These included the sale of Heelys to BBC International for $11 million, the sale of the DVS footwear brand to Elan Polo International for $2 million and the sale of Ellen Tracy and Caribbean Joe to GMA Group for $20 million.
Ultimately, DiSanto wrote that Sequential was able to enter into several transactions that helped set the stage for its Chapter 11 filing, including
entering into a restructuring support agreement with its lenders, executing stalking horse agreements with Galaxy for its active assets and Centric Brands for Joe’s Jeans, reaching an agreement on procedures, and an auction process to sell the remaining assets.
The restructuring support agreement includes a commitment for $150 million in debtor-in-possession (DIP) financing to refinance debt under its BofA Credit Agreement and fund the bankruptcy case. The restructuring support agreement includes key milestones for the sale process, including qualifying bids for the auction, which must be filed within 55 days after the bankruptcy filing with the auction to take place in 60 days.
The court document noted that Galaxy initially proposed a purchase price of $270 million for the active division brands on January 20, 2021 and the price increased to $310 million by January 29 with further negotiations before they stalled. Sequentials Term B Lenders stepped up to offer attractive financing for Galaxy to raise the bid to $333 million and signed a non-binding letter of intent on April 28.
Among its active brands, Sequential acquired Avia in 2014, which sold primarily in Walmart in the U.S., with additional distribution through specialty retailers, off-price retailers, related e-commerce sites, and globally. Beyond footwear and apparel, Avia has secured licenses for wearable fitness accessories, hosiery, sports bags, and other accessory products.
And1 was also acquired in 2014 with its key licenses include Galaxy for footwear and High Life for apparel. The brand is also sold at Walmart, specialty footwear and sporting goods stores.
Sequential acquired the Gaiam brand in 2016. The yoga brand’s major licenses include Fit For Life for yoga and wellness-related hardgoods products and High Life for apparel. Distribution includes mass market, department stores, specialty and sporting goods stores, grocery and drug stores. SPRI, acquired as part of the Gaiam transaction, is known for its rubber resistance products in the fitness and training category. Distribution includes specialty sporting goods, mass-market channels and commercial fitness channels (gyms, fitness clubs, and hotels).
The Swisstech luggage line sells at Walmart and may not be included in the Galaxy deal.
Centric has agreed to acquire the Joe’s Jeans brand for a total purchase price of at least $42 million. Centric holds the license for Joe’s Jeans.
Photo courtesy Sequential Brands/Avia
