Esprit de Hilfiger. Tommy Hilfiger Apax Funds worked with Tommy Hilfiger management to revive a classic American brand in its home country

Apax Partners Annual Report 2009 2 How Howdo wewe release release potential potential? Retail & Consumer 36 Esprit de Hilfiger Tommy Hilfiger Apax F...
Author: Hannah Dixon
10 downloads 0 Views 705KB Size
Apax Partners Annual Report 2009

2 How Howdo wewe release release potential potential?

Retail & Consumer

36

Esprit de Hilfiger Tommy Hilfiger Apax Funds worked with Tommy Hilfiger management to revive a classic American brand in its home country.

37

Apax Partners Annual Report 2009

2 How we release potential

Retail & Consumer

Tommy Hilfiger continued 38

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.

Iconic marketing High profile figures aligned to Hilfiger’s brand values were used to invigorate its marketing campaigns.

An iconic brand, known and loved the world over, the Hilfiger name and brand is synonymous with fresh, youthful fashion.

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.

Iconic fashion Hilfiger fashion is one of the most distinctive and recognisable in the world. Apax made a virtue of this strong heritage.

39

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.

Innovative store design Improving store design and high street presence was at the heart of the management’s strategy to turn around Hilfiger.

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. 

Apax Partners Annual Report 2009

2 How we release potential

Retail & Consumer

Tommy Hilfiger continued 40

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 Funds’ 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.”

+428

The number of stores has risen from 574 to 1,002

+1,000

The number of employees has risen by over 1,000 Revitalised marketing and advertising Adapting the European model, repeated the success of High Profile marketing in the US.

Setting up headquarters in NY Investment in the transformation of flagship stores was key to Hilfiger’s turnaround in the US.

41

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 will become the largest shareholder of PVH and will work actively to support the further progress of the combined businesses.

Success in the US The transformation of Hilfiger as a business and a brand provided the opportunity to partner with Phillips Van Heusen to further develop the business in China.

Apax were always supportive, and respectful of our strong culture. They thought outside the box, and added visible operational value. High-end retail The strategy to revitalise the brand attracted new, fashion-orientated customers to Hilfiger.

Fred Gehring CEO, Tommy Hilfiger