Identify
When we first entered discussions with Tommy Hilfiger,
the brand had lost its way in its US home market.
Over the years, it had drifted away from the 'preppy'
all-American design that was its founding signature. Its clothes
had become over-exposed and had lost their ability to sell at
premium prices. Coupled with this, the products were being piled
high and sold at knock-down prices in discount channels where the
company itself had little control.
As a quoted US company, analysts and investors struggled to see
beyond the declining profitability of the US business, which in
their eyes looked to be in terminal decline. This was reflected in
a languishing share price.
Seeking private ownership
For a European management team which had consistently
grown its side of the business and maintained premium quality and
pricing, the US situation was clearly disheartening. Under the
leadership of Fred Gehring, the team repeatedly attempted to
persuade the public company board to change its US strategy. The
failure to effect change in the public company setting was what
prompted Fred and his team to start investigating the possibility
of rebuilding the company under private ownership.
With this in mind, Fred began very early stage exploratory talks
with Apax. The project gained further momentum when Fred presented
his plans to founder Tommy Hilfiger, who also met the Apax
team.
Making the investment case
From the outset, the transatlantic Apax deal team saw this
as an exciting opportunity to work with an excellent management
team and rejuvenate one of the world's most iconic lifestyle
brands. Following initial discussions, the team worked hard to
scope the market, put together a credible investment case and
convinced the board of directors of the company to engage in a sale
process.
By the time advisers had been officially mandated by the board
to find a buyer, Apax Partners was already confident in the
management team and their proposals for taking the company forward.
The other critical advantage for Apax was the strength of its deal
teams in both the US and Europe and its specific fashion retail
experience in companies such as PVH/Calvin Klein and rue21 in the
US, New Look in the UK and CBR in Germany.
Recognising potential
While other investors were invited to pitch for the
business, all took the same line as the US analyst community and
viewed this as an American business in terminal decline. The Apax
team took a contrary view and shared management's belief in the
strength in of the European and Asian business and the possibility
of a US turnaround.
In December 2005, Funds advised by Apax Partners agreed to take
the company private for approximately $1.6bn in cash.
Support
The management team had devised a very clear roadmap to
recovery prior to the investment. Having made its own assessment,
the team at Apax had full confidence in this plan and we saw it as
our job to assist management in whatever way possible to realise
this vision.
The most pressing concern was the turnaround of the US business.
It was clear that radical action would have to be taken quickly, in
order to stem the decline. Under Apax ownership new management was
quickly brought on board in the US, costs were cut and the company
restructured its department store business through an exclusive
distribution deal with the leading department store operator,
Macy's, that gave it more control over and alignment of interest
with its distribution partner. Rather than piling high and selling
cheap, the business now had control over quality, pricing and the
environment in which the clothes were being sold.
It didn't happen overnight, because the US business had to
shrink before it could expand again, but the management team
achieved that rare thing, the rejuvenation of a brand that was
considered to be in terminal decline.
Support for expansion
Over the past four years, the Apax team also supported the
company on a number of M&A initiatives including the
acquisition of its Japanese and Turkish distributors and the sale
of its sourcing operations to Li & Fung, a major Chinese
sourcing corporation. In terms of major operational changes, it has
re-launched its e-commerce business in cooperation with D+S,
another Apax portfolio company, and the internal Apax Portfolio
Support Group.
A stronger business
The end result of all these initiatives has been the
emergence of a stronger, more profitable company. During the period
of the Apax's investment, profits have increased from €180m to more
than €270m and net debt in the business has decreased from around
4.3 x EBITDA (€790m) at entry to the current level of 1.5 x EBITDA
(€400m). Additionally, employee numbers have risen by more than
1,000 and the number of stores has increased from 574 to 1,002.
More than €400m has been invested in the growth of the
business.
Fred Gehring, CEO of Tommy, said: "Apax Partners shared our
belief in the underlying strength of this business from the start -
they were the natural partner for us. Their support and backing
over the past four years as we gained momentum globally while
rebuilding the business in North America has been invaluable."
Realise
In March 2010, Funds advised by Apax Partners announced an
agreement to sell Tommy Hilfiger Group to US-listed Phillips-Van
Heusen Corporation for approximately €2.3bn ($3.0bn).
The deal included €1.924bn ($2.6bn) in cash and €276m ($380m) in
Phillips-Van Heusen shares and the assumption of €100m debt. Apax
will retain ownership of the Karl Lagerfeld trademarks and a 50%
share of a new Joint Venture formed with PVH to grow the Tommy
Hilfiger business in China.
Apax had partnered with PVH back in 2002 to support its
acquisition of Calvin Klein so it knew the company and management
well and had first-hand experience of management's ability to
integrate and manage global fashion brands. We think that the
ultimate outcome will give the company the ability to continue its
international growth and expansion under the continued leadership
of Fred Gehring and his team and we wish the business every success
in the future.
As a result of the transaction, Apax Funds became the
largest shareholder of PVH and continue to work actively to support
the further progress of the combined businesses.