Montreal, Quebec-based Gildan Activewear Inc. (TSX/NYSE: GIL) said it agreed to acquire the worldwide intellectual property rights related to the American Apparel brand and certain assets from American Apparel LLC, a teenage fashion retailer once considered one of the largest apparel manufacturers in North America based in Los Angeles, for $66 million in cash.
Gildan said it will also separately purchase inventory from American Apparel to ensure a seamless supply of goods in the printwear channel while the company integrates the brand within its Printwear business. Gildan will not be purchasing any retail store assets.
The closing of the deal is subject to approvals by the American Apparel bankruptcy process and customary conditions, and is expected to occur during the first quarter of 2017.
American Apparel was founded in 1989 by its controversial former chairman and CEO Dov Charney. American Apparel’s manufacturing is based in a seven-story 800,000-square-foot factory in downtown Los Angeles, where it produced more than 55,000 different products and garments. The company also owns and operates its own fabric dye house, garment dye house, and knitting facility, all based in Los Angeles. According to The New York Times, in 2006 American apparel was “the single largest garment factory in the United States.”
The erstwhile fashion empire went “from being the coolest company on the block when it arrived in Britain in 2004,” according to The Guardian, which named American Apparel “label of the year” in 2008, to chapter 11 bankruptcy in October 2015, due to ongoing losses.
“The label’s progressive labour standards and high voltage ads made it notorious – from dorm room project to generation-defining brand,” says Dazed writer Julie Zerbo. “After settling in Los Angeles in 1997, Charney began to make waves, challenging the labour standards of the local garment industry by paying higher wages (two times higher than the standard wage at times).”
“American Apparel had a very precise identity to uphold: attainable aspiration – those hot, ‘real’ twenty-somethings that appeared in their images,” she added. “They took on larger competitors, such as The Gap, by catering to those experiencing logo fatigue. From early on, Charney eschewed logos – like the brand names his rivals were slapping on most of their t-shirts and sweatshirts.”
In December 2014, Charney was forced out after an investigation for misuse of company funds and inappropriate conduct with employees.
In January 2016, American Apparel rejected a bid reportedly valued at $300 million from Charney’s backers, Atlanta, Georgia-based family office and independent venture capital investor Hagan Capital Group, and Dallas, Texas-based early-stage venture capital investor Silver Creek Ventures.
In February 2016, American Apparel exited bankruptcy and became privately owned by its creditors under a financial restructuring plan whereby the company converted $230 million in a debt-for-equity swap. The company’s new owners include Standard General, Monarch Alternative Capital, Coliseum Capital, and Goldman Sachs Asset Management. The investor group also reportedly arranged a $40 million loan to help it exit its previous bankruptcy, and injected another $40 million in new debt and equity. The holdings of former American Apparel shareholders, including Charney, became worthless.
In August 2016, American Apparel was said to have hired investment bank Houlihan Lockey to explore an exit, as reported by ExitHub at the time. However, by November American Apparel voluntarily filed for Chapter 11 bankruptcy protection once again. The bankruptcy court may require American Apparel to hold an auction for its assets and business under which the proposed acquisition would constitute the initial bid. Consummation of the acquisition would be subject to Gildan being selected as the successful bidder in any such auction and bankruptcy court approval. Gildan will be entitled to a break-up fee and certain expense reimbursements if it does not prevail as the successful bidder at any such auction.
The American Apparel brand would represent a complementary addition to Gildan’s portfolio of brands. The acquisition would create revenue growth opportunities by leveraging Gildan’s extensive distribution network in North American and international printwear markets to further increase the brand’s penetration in the faster growing fashion basics segments of these markets. In addition, with American Apparel’s strong heritage as a consumer brand, Gildan said it will evaluate potential wholesale opportunities for leveraging the brand within its Branded Apparel business.
Gildan is a leading manufacturer and marketer of quality branded basic family apparel, including T-shirts, fleece, sport shirts, underwear, socks, hosiery, and shapewear. The company sells its products under a diversified portfolio of company-owned brands, including the Gildan, Gold Toe, Anvil, Comfort Colors, Alstyle, Secret, Silks, Kushyfoot, Secret Silk, Peds, MediPeds and Therapy Plus brands.
Sock products are also distributed through the company’s exclusive U.S. sock license for the Under Armour brand, and a wide array of products is also marketed through a global license for the Mossy Oak brand. The company sells its products through two primary channels of distribution, namely printwear and retail markets.
Gildan distributes its products in printwear markets in the U.S., Canada, Europe, Asia-Pacific, and Latin America. In retail markets, the company sells its products to a broad spectrum of retailers primarily in the U.S. and Canada and also manufactures for select leading global athletic and lifestyle consumer brands. Gildan owns and operates vertically-integrated, large-scale manufacturing facilities which are primarily located in Central America, the Caribbean Basin, North America, and Bangladesh, with over 48,000 employees worldwide.