On Jan. 23, four days after making a preliminary offer to buy the remaining shares of Blair it didn’t already own, Appleseed’s Topco, a subsidiary of Golden Gate Capital, entered into a definitive agreement to buy apparel and home goods marketer Blair Corp. And during those four days Appleseed’s sweetened the pot appreciably: Whereas it had originally offered to pay $37.50 a share, it’s now buying Blair for $42.50 a share, or $173.6 million—a clear indication of Appleseed’s enthusiasm for the venerable cataloger.
A Beverly, MA-based cataloger/retailer of women’s apparel, Appleseed’s made its initial offer of $37.50 a share on Jan. 19, according to papers filed with the Securities and Exchange Commission (SEC). Under the current agreement, Blair can still solicit additional proposals for 30 days, and it says that it intends to do so. Industry observers do not expect a bidding war, however, in part because of its mediocre performance of late and because of the price. Appleseed’s is paying a 15% premium per share, given that Blair’s stock closed at $36.95 a share on Jan. 22. The transaction is expected to close in the spring.
Appleseed’s is paying 10.5 times EBITDA, adjusted for the 8.1% of Blair that it already owns, says Lee Helman, managing director of New York-based investment bank Financo. “This is typically much higher than what Golden Gate pays for its acquired companies.”
“After careful consideration, in conjunction with our independent advisors, we have concluded that this transaction is in the best interest of our shareholders,” Craig Johnson, Blair’s chairman of the board, said in a statement. “This transaction, which will make Blair a private company, will provide greater resources to accomplishes the company’s long-term goals.”
“We have targeted this segment of the women’s specialty market because it is one of the fastest-growing demographic segments of the population—women over 50 years old,” Stefan Kaluzny, Golden Gate’s managing director, said in a statement. “The acquisition of Blair, a marquee brand in this space, significantly strengthens our portfolio and provides us scale and purchasing power that none of the companies has had individually.”
Appleseed’s Topco—a portfolio company of Golden Gate—includes women’s apparel cataloger/retailer Draper’s & Damon’s, women’s clothing catalog The Tog Shop, apparel manufacturer/marketer Haband, apparel, outdoor apparel mailer Sahalie, home goods title Solutions, and home goods and gifts cataloger Norm Thompson. Another Golden Gate portfolio company, Catalog Holdings, includes general merchandise cataloger Spiegel and women’s apparel titles Newport News, Venus Swimwear, and A.B. Lambdin. In addition, on Nov. 13, Golden Gate partnered with Sun Capital to purchase apparel cataloger/retailer Eddie Bauer for $614 million.
Stuart Rose, managing director of Wellesley, MA-based investment bank Tully & Holland, believes the deal is a good one for the $456.6 million Blair. “Blair, though large, is not especially profitable,” he says. “Its stock price is down more than 10% from a year ago, even though the market is up. Add to that the departure of its CEO [John Zawacki, which was announced last month]. Appleseed’s, which has I believe been on a good run and has strong management, is looking to leverage itself through Blair’s larger customer base.” Both Appleseed’s and Blair, along with several other Catalog Holdings titles, target mature consumers.
Ivan P. Feinseth, managing director/director of research for New York-based financial services company Matrix USA, believes the time is right for Blair to make a move. “They weren’t really getting the benefit of being a public company,” he says. “Good company, bad stock, and investors want to see strong growth. The company has good cash flow but no real growth to their earnings. This is a company that would rather be private than deal with the shareholders.”
Founded in 1910, Blair went public in 1971. “The stock we thought was worth a lot more than it was trading at,” Feinseth says. “We thought it was worth in the mid-$40s [per share], which it hit last spring. In our view, companies with a market capital of under $200 million, or even $500 million, should be private.” Feinseth says Blair’s market capital is roughly $150 million.
“Blair’s performance has been flat for years, and as one of the largest stand-alone apparel direct marketers, it was an obvious target for Golden Gate,” says Mike Petsky, founding partner of New York-based investment bank Petsky Prunier. “Being large is relative. When private equity groups can readily do multibillion-dollar buyouts, a company with a couple hundred million in enterprise value is not particularly large. The multiple Blair has been trading at—around eight times EBITDA and 0.3 times revenue—is also not particularly high for companies of that size.”
All in all, Financo’s Helman says, “The price is a great price for Blair and for Appleseed’s. Blair was the last large independent catalog of apparel, and its performance had been up and down over the last few years. I know that there were several companies that made overtures over the years to acquire it.”
The day before the agreement was announced, Blair had named Adelmo Lopez its president/CEO, replacing Zawacki, effective immediately. Lopez will remain in the post. He had just joined the company in September, as executive vice president/chief operating officer/chief financial officer.