Source:www.wsj.com
American Apparel Seeks Growth Through an Unusual Deal
By STEPHANIE KANG
December 19, 2006; Page B1
Sassy, sexy fashion company American Apparel Inc. has found a partner.
The Los Angeles-based company, best known for hawking its snug-fitting T-shirts and cotton underwear with sultry advertising, announced Tuesday that it will be acquired by a so-called specified purpose acquisition company called Endeavor Acquisition Corp. Such entities, often called "blank-check" firms, are public companies formed specifically to seek out acquisitions; investors don't know what they are buying when the specified purpose acquisition company initially goes public.
In the case of American Apparel, hooking up with Endeavor is a way for the fast-growing retail chain to expand rapidly -- especially overseas -- without going through the lengthy process of an initial public offering. In addition to moving quickly, the arrangement allows a company like American Apparel to get the benefits of an initial public offering without much of the scrutiny that comes with an IPO.
American Apparel is an anomaly in the fashion world -- a hip apparel and retail company that makes nearly all of its products in a multistory factory in Los Angeles rather than overseas. But in addition to its labor-friendly reputation, it is also known for sexually provocative marketing. Grainy enlarged photographs of young men and women hang on the walls of American Apparel stores, litter the high-ceiling corporate offices, even line the elevators leading up to the factory floors. The images, which include many former and current American Apparel employees, deliberately hark back to styles of photos in Penthouse and Playboy magazines in the 1970s, say people familiar with the company.
Under the agreement, Endeavor will acquire American Apparel for about 32 million shares of restricted Endeavor stock, valued at about $250 million, plus the assumption of $110 million in debt, according to people familiar with the matter. Endeavor will also create a one-time bonus pool of $2.5 million and reserve about 2.7 million shares of Endeavor stock for American Apparel employees.
American Apparel executives, including charismatic and sometimes controversial founder Dov Charney, will remain on board. The new entity, named American Apparel, will trade either on the American Stock Exchange or another national stock exchange and remain based in Los Angeles.
Mr. Charney has said in the past that he was looking for capital to expand American Apparel, which sells its clothing directly online and in more than 140 retail stores in 11 countries. "I'm 37 and I wanted to make this happen as early as possible," Mr. Charney said in an interview Monday. "We have momentum right now and we don't want to lose that. The apparel and specialty retail industry is seriously competitive. ... We want to be the best that we can be."
"We believe he's a visionary and we believe in the ethos and culture of his business," said Endeavor President Jonathan Ledecky, adding, "Quite frankly it attracts a growing population segment in the marketplace."
Specified purpose acquisition companies, or SPACs, are increasingly known as blank-check companies because investors in the stock literally don't know at first what they are buying. SPACs raise capital on the promise that management will find suitable assets to acquire in their target business by a certain date or return remaining funds to shareholders. Acquisitions must be approved by 80% of the company's common shareholders, and usually gain that approval. Unlike private-equity funds, which cater to investors with deep pockets, SPACs also are open to small investors.
The deal fulfills a yearlong hunt for a business for Endeavor, whose founders include Mr. Ledecky and New Zealand businessman Eric Watson. The SPAC raised $129.3 million in an initial public offering in December 2005 and had 18 months to find a company to acquire. Endeavor executives visited the Los Angeles factory in the summer, though talks didn't begin until fall of this year.
American Apparel plans on using the funds to expand its core apparel business. With more than 5,000 employees, American Apparel is one of the largest domestic producers of cotton garb such as T-shirts, able to produce more than one million T-shirts a week at its downtown Los Angeles factory. The company plans on expanding into new categories; for instance, in September American Apparel launched a line of denim jeans, including a slate-gray skinny jean. The company will also use funds for better manufacturing equipment.
It will also open hundreds more stores in cities where American Apparel consumers -- which Mr. Charney calls "metropolitan urban consumers" -- live and work.
"A global view is very important right now," Mr. Charney said. "The new marketplace is not from L.A. to N.Y. but around the globe. There are metropolitan young adults in Bangkok and in Auckland." He added: "There is a new kind of international adult that's emerging in this next generation. We want to feed into that."
After years of haphazard growth, American Apparel will add several administrative and financial positions. What won't change are American Apparel's trademark manufacturing practices and hip, sensual marketing, personified by Mr. Charney and his young work force. "Fashion is exciting because it's provocative," said Mr. Charney, who believes that the company's advertising isn't any racier than that of companies like Gucci or Calvin Klein. "We plan to continue to present ourselves in an exciting manner."
Mr. Ledecky agrees. "We would not want to do anything to change the corporate culture [at American Apparel]." At the same time, "Dov has become very aware of the transformation involved in becoming a public company CEO and he has embraced it."
Mr. Charney, who sports 1970s-style facial hair and has a keen sense of what's cool, is perhaps the company's biggest draw. Obsessed with Hanes cotton T-shirts as a teenager in the 1980s in Montreal, Mr. Charney started American Apparel as a wholesale T-shirt business after failing at a similar apparel venture in South Carolina. Soon after he was creating his own designs -- along the way, hiring hip, young women and some men to pose for advertising photos. Eventually some of them worked at his rapidly expanding number of retail locations.
The footloose atmosphere of the company, however, has also brought on some controversy. Four plaintiffs, former employees, have filed sexual-harassment lawsuits against Mr. Charney and American Apparel -- claims by three of those plaintiffs have been either dismissed or settled out of court.
American Apparel is also unusual in the fashion world for its manufacturing practices, making nearly all of its products in Los Angeles. American Apparel pays its workers between $8 and $19 an hour, at the very high end of wages in this industry -- while competitors from Abercrombie & Fitch Co. to smaller, higher-priced fashion companies manufacture their products in Latin America and Asia for far less. Workers also receive company-supported medical coverage, and free English and citizenship classes.
For the fiscal year ending Dec. 31, American Apparel is expected to post sales of about $275 million and earnings before interest, taxes, depreciation and amortization of about $30 million. Sales have grown nearly eightfold since the company's 2002 fiscal year.
Mr. Ledecky, who is also an Endeavor board member, is chairman of private investment-management fund Ironbound Partners Fund. Endeavor board members include Edward Mathias, managing director of the Carlyle Group, and Robert Hersov, the vice-chairman of NetJets Europe Ltd., a subsidiary of NetJets Inc. private-plane company.
American Apparel Seeks Growth Through an Unusual Deal
By STEPHANIE KANG
December 19, 2006; Page B1
Sassy, sexy fashion company American Apparel Inc. has found a partner.
The Los Angeles-based company, best known for hawking its snug-fitting T-shirts and cotton underwear with sultry advertising, announced Tuesday that it will be acquired by a so-called specified purpose acquisition company called Endeavor Acquisition Corp. Such entities, often called "blank-check" firms, are public companies formed specifically to seek out acquisitions; investors don't know what they are buying when the specified purpose acquisition company initially goes public.
In the case of American Apparel, hooking up with Endeavor is a way for the fast-growing retail chain to expand rapidly -- especially overseas -- without going through the lengthy process of an initial public offering. In addition to moving quickly, the arrangement allows a company like American Apparel to get the benefits of an initial public offering without much of the scrutiny that comes with an IPO.
American Apparel is an anomaly in the fashion world -- a hip apparel and retail company that makes nearly all of its products in a multistory factory in Los Angeles rather than overseas. But in addition to its labor-friendly reputation, it is also known for sexually provocative marketing. Grainy enlarged photographs of young men and women hang on the walls of American Apparel stores, litter the high-ceiling corporate offices, even line the elevators leading up to the factory floors. The images, which include many former and current American Apparel employees, deliberately hark back to styles of photos in Penthouse and Playboy magazines in the 1970s, say people familiar with the company.
Under the agreement, Endeavor will acquire American Apparel for about 32 million shares of restricted Endeavor stock, valued at about $250 million, plus the assumption of $110 million in debt, according to people familiar with the matter. Endeavor will also create a one-time bonus pool of $2.5 million and reserve about 2.7 million shares of Endeavor stock for American Apparel employees.
American Apparel executives, including charismatic and sometimes controversial founder Dov Charney, will remain on board. The new entity, named American Apparel, will trade either on the American Stock Exchange or another national stock exchange and remain based in Los Angeles.
Mr. Charney has said in the past that he was looking for capital to expand American Apparel, which sells its clothing directly online and in more than 140 retail stores in 11 countries. "I'm 37 and I wanted to make this happen as early as possible," Mr. Charney said in an interview Monday. "We have momentum right now and we don't want to lose that. The apparel and specialty retail industry is seriously competitive. ... We want to be the best that we can be."
"We believe he's a visionary and we believe in the ethos and culture of his business," said Endeavor President Jonathan Ledecky, adding, "Quite frankly it attracts a growing population segment in the marketplace."
Specified purpose acquisition companies, or SPACs, are increasingly known as blank-check companies because investors in the stock literally don't know at first what they are buying. SPACs raise capital on the promise that management will find suitable assets to acquire in their target business by a certain date or return remaining funds to shareholders. Acquisitions must be approved by 80% of the company's common shareholders, and usually gain that approval. Unlike private-equity funds, which cater to investors with deep pockets, SPACs also are open to small investors.
The deal fulfills a yearlong hunt for a business for Endeavor, whose founders include Mr. Ledecky and New Zealand businessman Eric Watson. The SPAC raised $129.3 million in an initial public offering in December 2005 and had 18 months to find a company to acquire. Endeavor executives visited the Los Angeles factory in the summer, though talks didn't begin until fall of this year.
American Apparel plans on using the funds to expand its core apparel business. With more than 5,000 employees, American Apparel is one of the largest domestic producers of cotton garb such as T-shirts, able to produce more than one million T-shirts a week at its downtown Los Angeles factory. The company plans on expanding into new categories; for instance, in September American Apparel launched a line of denim jeans, including a slate-gray skinny jean. The company will also use funds for better manufacturing equipment.
It will also open hundreds more stores in cities where American Apparel consumers -- which Mr. Charney calls "metropolitan urban consumers" -- live and work.
"A global view is very important right now," Mr. Charney said. "The new marketplace is not from L.A. to N.Y. but around the globe. There are metropolitan young adults in Bangkok and in Auckland." He added: "There is a new kind of international adult that's emerging in this next generation. We want to feed into that."
After years of haphazard growth, American Apparel will add several administrative and financial positions. What won't change are American Apparel's trademark manufacturing practices and hip, sensual marketing, personified by Mr. Charney and his young work force. "Fashion is exciting because it's provocative," said Mr. Charney, who believes that the company's advertising isn't any racier than that of companies like Gucci or Calvin Klein. "We plan to continue to present ourselves in an exciting manner."
Mr. Ledecky agrees. "We would not want to do anything to change the corporate culture [at American Apparel]." At the same time, "Dov has become very aware of the transformation involved in becoming a public company CEO and he has embraced it."
Mr. Charney, who sports 1970s-style facial hair and has a keen sense of what's cool, is perhaps the company's biggest draw. Obsessed with Hanes cotton T-shirts as a teenager in the 1980s in Montreal, Mr. Charney started American Apparel as a wholesale T-shirt business after failing at a similar apparel venture in South Carolina. Soon after he was creating his own designs -- along the way, hiring hip, young women and some men to pose for advertising photos. Eventually some of them worked at his rapidly expanding number of retail locations.
The footloose atmosphere of the company, however, has also brought on some controversy. Four plaintiffs, former employees, have filed sexual-harassment lawsuits against Mr. Charney and American Apparel -- claims by three of those plaintiffs have been either dismissed or settled out of court.
American Apparel is also unusual in the fashion world for its manufacturing practices, making nearly all of its products in Los Angeles. American Apparel pays its workers between $8 and $19 an hour, at the very high end of wages in this industry -- while competitors from Abercrombie & Fitch Co. to smaller, higher-priced fashion companies manufacture their products in Latin America and Asia for far less. Workers also receive company-supported medical coverage, and free English and citizenship classes.
For the fiscal year ending Dec. 31, American Apparel is expected to post sales of about $275 million and earnings before interest, taxes, depreciation and amortization of about $30 million. Sales have grown nearly eightfold since the company's 2002 fiscal year.
Mr. Ledecky, who is also an Endeavor board member, is chairman of private investment-management fund Ironbound Partners Fund. Endeavor board members include Edward Mathias, managing director of the Carlyle Group, and Robert Hersov, the vice-chairman of NetJets Europe Ltd., a subsidiary of NetJets Inc. private-plane company.
