Updated 4:05 p.m. ET Feb. 16
Rag & Bone is headed in a new direction.
The brand — which started in premium denim and aspired to a more designer or luxury positioning — agreed to sell itself to Guess Inc. and brand management firm WHP Global.
Under terms of the deal, Guess will buy all of the operating assets of the New York-based business. Separately, a 50/50 joint venture controlled by Guess and WHP will acquire the brand’s intellectual property.
The full purchase price was not disclosed, but Guess’ portion of the deal tallies $56.5 million, plus an earn out that could add as much as $12.8 million to the purchase price.
That puts the full price to buy the business well below its sales, which last year came in at $250 million, driving adjusted earnings before interest, taxes, depreciation and amortization of $18 million. The brand has 34 stores in the U.S., two doors in the U.K. and numerous wholesale accounts.
The sale is the latest major development at the brand in the last eight months: Marcus Wainwright, who cofounded the business with David Neville in 2002, stepped down as chief brand officer last July.
Rag & Bone has continued to evolve and last month hired the well-respected Robert Geller to design its menswear.
A look from the first Robert Geller-designed menswear line for Rag & Bone.
courtesy
But now the table is being reset.
One source familiar with the company said: “This is not an elevation of where Rag & Bone was a decade ago or where the market expected it to go when Robbert Geller was named” to his design role.
But another source — who said Rag & Bone got a “good price” but not a “great price” — said the business is being positioned to win.
“You don’t buy this brand and dumb it down, you buy it to invest in and grow it and that’s really the objective,” the source said. “This should be a $500 million brand and I think they see that.”
Much remains to be seen.
Guess executives were not available to comment on Friday, but under the company’s umbrella, Rag & Bone will certainly have new resources and access to new skill sets to realize its potential.
Investors liked the deal and traded shares of Guess up 3.9 percent to $25.01.
Eric Beder, an analyst at Small Cap Consumer Research, said: “Guess looks at this as a premium denim brand they can leverage in terms of expanding it internally, in terms of expanding the assortments and in terms of actually expanding in the U.S., in terms of having more stores, maybe in some malls or beyond where they are right now.
“They’re going to let the Rag & Bone guys do their thing,” Beder said. “The Rag & Bone people are going to be independent in the organization.”
The structure of the deal — with an operating company teaming up with a brand management firm — is becoming more common, with WHP similarly working with Express to buy Bonobos from Walmart last year.
“This is a very easy way for a brand licensor to buy a brand without having to get their hands dirty and own stores,” Beder said. “Brand licensors don’t want to own the assets. It’s also a way of founders to cash out.”
The deal, the first in Guess’ 43-year history, shows just how the market for smaller fashion brands is evolving. The traditional buyers, including private equity companies, were already shying away from the space before higher interest rates made everything more expensive.
Now, there are more sellers than buyers in the market, but the bankers who play matchmaker say they’re keeping busy as players on both sides feel their way forward. Rag & Bone was advised by investment bank Solomon Partners while Guess worked with The Sage Group.
Paul Marciano, cofounder of Guess Inc.
Michael Buckner/PMC
Paul Marciano, cofounder and chief creative officer, of Guess, said: “Rag & Bone is a brand I have always loved and respected. It is a brand well known for its preeminence in American fashion that over the years has stayed true to its roots and founding values, with an unwavering commitment to quality and authenticity.
“I look forward to working with Andrew Rosen and the talented team at Rag & Bone to pursue the brand’s product and market expansion internationally,” Marciano said.
Rosen, a fashion and investment veteran who is chairman of Rag & Bone, said: “Today marks the beginning of an exciting new chapter as Rag & Bone joins forces with a much larger international fashion company. It’s a great opportunity for our team to take the brand to the next level, blending our unique styles and respective expertise to create new possibilities for Rag & Bone on a global scale.”
And Carlos Alberini, chief executive officer of Guess, said the transaction would diversify the company’s portfolio with complementary price points.
“We look forward to partnering with WHP Global to build on Rag & Bone’s heritage,” Alberini said. “Guess has an incredible platform with a strong global distribution network and outstanding licensee partners that will enable us to power the growth and expansion of the Rag & Bone business. We expect the transaction to deliver earnings per share accretion in the first year and strong value creation for our shareholders for years to come.”
