Big Deal: Eddie Bauer and Golden Gate

Given its heady catalog acquisition spree during the past two years, Golden Gate Capital’s purchase this fall of a few more apparel merchants hardly seems like news. But the private equity firm’s most recent deal — as of press time, anyway — did grab attention.

Golden Gate Capital and Sun Capital on Nov. 13 agreed to buy $1.75 billion cataloger/retailer Eddie Bauer for $614 million, including $328 million in debt. The acquisition, subject to the approval of Eddie Bauer stockholders and other customary closing conditions, including Hart-Scott-Rodino antitrust review, is expected to close in the first quarter of 2007. The announcement came just three days after Golden Gate reported that it was buying Venus Swimwear, the parent company of the Venus and WinterSilks catalogs. The Venus deal, in turn, came less a month after Golden Gate acquired direct marketer Haband Co. Golden Gate’s other acquisitions for this year include Carabella and A.B. Lambdin, purchased in September, and Norm Thompson Outfitters, bought in March.

The Eddie Bauer acquisition is unique in part because San Francisco-based Golden Gate joined forces with Boca Raton, FL-based Sun Capital, which had bought gifts, decor, and housewares cataloger Lillian Vernon Corp. in May. (Neither Golden Gate nor Sun Capital would comment for this story.) Because Golden Gate will co-own Eddie Bauer, the cataloger/retailer might not become part of Golden Gate’s Catalog Holdings Corp., the holding company that owns its other catalog brands.

What’s more, Redmond, WA-based Eddie Bauer is the only company in Golden Gate’s stable of apparel merchants with a significant retail presence. As of September it had 275 full-price stores and 114 outlet shops. The catalogs and Website, in fact, accounted for only $268.1 million of Eddie Bauer’s $1.75 billion in revenue for fiscal 2005.

A fixer-upper

It’s also worth noting that while Golden Gate has been buying apparel catalogers right and left for the past two years, Eddie Bauer had been languishing on and off the selling block. It was in fact, up for grabs when Golden Gate’s Catalog Holdings bought its then-sister catalogs Spiegel and Newport News in summer 2004.

Spiegel Group, the former parent company of the three titles, had filed for bankruptcy protection in March 2003. After the Spiegel catalog and Newport News were sold, the company tried to find a buyer for Eddie Bauer for a year. It took down the “for sale” sign in 2005, and the company renamed itself Eddie Bauer Holdings when it came out of bankruptcy later that year.

Even after emerging from bankruptcy, Eddie Bauer continued to struggle. Its direct sales for the third quarter ended Sept. 30 were $49.8 million, down 3.5% from the third quarter of last year. Total revenue for the quarter dropped nearly 3%, to $211.3 million from $217.3 million a year ago; same-store sales declined 1.5%. And it posted a net loss for the quarter of $197.6 million.

“It was a horrible third quarter for Bauer,” says David Solomon, managing director for New York-based investment bank Goldsmith Agio Helms. But there are some signs of improvement, he adds. For instance, its September same-store sales had actually increased. Although one month doesn’t make a year, “there is some perception that the worst is over at Eddie Bauer,” Solomon says.

Bauer’s earnings before interest, taxes, depreciation, and amortization (EBITDA) for the trailing 12 months as of Sept. 30 was $56.1 million, which means the company sold for 10.9 times EBITDA. “That’s a good full price a company that’s had some trouble,” Solomon says, “but it pales in comparison to the prices paid for J. Jill [19.3 multiple] and Sportsman’s Guide [12.8 multiple].”

Clearly Eddie Bauer is something of a fixer-upper for Golden Gate and Sun Capital. “Eddie Bauer seemed to lose its way years ago when it tried to break out of its outdoor niche like Abercrombie & Fitch or American Eagle did,” says Stuart Rose, managing director of Wellesley, MA-based investment bank Tulley & Holland. “It never successfully made its way there or made its way back.”

But Bauer isn’t the first struggling marketer that Golden Gate has bought. Norm Thompson Outfitters, for one, was under considerable financial distress when it was sold.

A source familiar with Golden Gate who asked not to be identified notes that the apparel market “is a very tough segment and has been for many years, and many [direct marketers] are underperforming because they don’t have the scale to compete with retailers. But [Golden Gate] managing director Stefan Kalusny has come in and bought companies using best practices and leveraging names and lists and helping the underperformers perform, and that’s a powerful engine.”

Goldman Sachs & Co. served as Eddie Bauer’s financial adviser in connection with the deal. The company noted that Goldman Sachs & Co. and William Blair & Co. each rendered separate fairness opinions to its board, from a financial point of view, of the consideration to be received by Eddie Bauer’s stockholders in the merger.

Rolling, rolling, rolling

Golden Gate’s Catalog Holdings brands total roughly $1.1 billion in annual sales. Its latest shopping spree began with its acquisition of low-end apparel and accessories marketer Haband Co. in late October. At more than $250 million in sales, Haband is one of the largest privately held mail order companies in the U.S. Haband targets baby boomers, as do many of Golden Gate’s other titles, including women’s clothing catalogs Appleseed’s, Draper’s & Damon’s, A.B. Lambdin, and The Tog Shop.

One of the titles that Golden Gate acquired next, undergarments catalog WinterSilks, also targets that demographic. WinterSilks was owned by Jacksonville, FL-based Venus Swimwear, which was acquired on Nov. 10. The Venus title skews toward women in their 20s and early 30s, as do Newport News and Carabella, which like Venus and A.B. Lambdin specializes in swimwear.

Michael Grant, managing director for New York-based strategic consulting firm Winterberry Group, says the deals are consistent with Golden Gate’s mission of becoming a major presence in the women’s apparel market. “It’s a classic strategic growth plan being executed, targeting additional product categories in swimwear and sleepwear and intimate apparel,” he says. “They’ve extended their brand with a player in those marketplaces — Venus for swimwear, WinterSilks for fashion apparel and accessories.” And like Norm Thompson and Haband, “Eddie Bauer also sells men’s clothing,” he says.

The downmarket Haband — which targets seniors as well as older boomers and has an average order of $45 — may seem an odd fit with some of Golden Gate’s higher-end properties. But having bought its way into the men’s apparel market and the swimwear market, Golden Gate is using Haband as a way to expand into the lower-price market. Expanding its age universe, product categories, and price points “sets [Golden Gate] up to be very strong strategically,” Grant says. “They want to be able to offer something to someone in every household, and these acquisitions extend their reach into new households. This confirms that investors have realized the value of direct marketing.”

Golden Gate’s roll-up strategy relies in part on cross-marketing lists that involve similar demographics of like-minded companies. “As database management continues to become increasingly sophisticated, more entities will use ‘inhouse co-ops’ to mine for new customers and increased revenues,” says Rose of Tulley & Holland. “The catalog consolidators, such as AmeriMark, Golden Gate, and Potpourri Group, are learning how to leverage the assets — customers — of one division into another one.”

A possible exit?

Golden Gate isn’t doing all of this rolling up because it likes to acquire mailing lists, however. Typically financial buyers such as Golden Gate hold a property for three to seven years before selling. For private equity buyers, growth and return on investment are the priorities. Growing companies generate much higher multiples at the time of exit, ensuring the owners a higher return. Say an equity firm buys a multichannel merchant for three to four times earnings. If the firm can significantly build the merchant’s revenue and market share — and show that such growth is likely to continue — the property could sell for maybe 10 or 12 times EBITDA.

Several industry sources told Multichannel Merchant that Golden Gate may be in the early stages of maneuvering Catalog Holdings toward an initial public offering as its exit strategy. But Lee Helman, managing director at New York-based investment bank Gruppo, Levey & Co., says that Golden Gate needs to integrate the back end of the businesses to gain efficiencies that would make its catalog roll-up attractive to investors.

“From a systems and integration point of view, I’d speculate that Golden Gate still has an extraordinary amount of work to do to integrate the back end,” Helman says, citing the need to coordinate fulfillment, contact center, and other systems. — Additional reporting by Jim Tierney



Washington outdoorsman Eddie Bauer opens Eddie Bauer’s Sport Shop in downtown Seattle


Eddie Bauer mails its first catalog


Founder Bauer retires, selling the business to William Niemi and his son


Company sold to General Mills; ramps up national retail expansion


Spiegel Group buys Eddie Bauer from General Mills


Eddie Bauer launches German catalog; enters into Japanese joint venture


Company launches


Parent company Spiegel files for Chapter 11 reorganization


Eddie Bauer Holdings formed as a result of Spiegel reorganization


Eddie Bauer acquired by Golden Gate Capital and Sun Capital

Golden Gate’s running tally
Newport News June 2004
Spiegel July 2004
Draper’s & Damon’s November 2005
Appleseed’s/The Tog Shop November 2005
Norm Thompson Outfitters/Sahalie/Solutions March 2006
Carabella Corp./A.B. Lambdin September 2006
Haband Co. October 2006
Venus Swimwear/WinterSilks November 2006
Eddie Bauer* November 2006
* acquired with Sun Capital