A number of merger and acquisition transactions in retail are being floated in late January, as retail’s transformation continues to steam ahead.
While Gap nixed its plans to spin off Old Navy, other retail conglomerates are expected to explore splitting off key banners. Potential deals include a sale of Victoria’s Secret by L Brands, an acquisition of Forever 21 by Authentic Brands Group and Simon Properties, and more divestitures by VF Corp. and PVH following its sale of Speedo.
L Brands is reportedly weighing a sale of Victoria’s Secret, according to the The Wall Street Journal, in tandem with the reported departure of its CEO Les Wexner, who is under scrutiny because of his ties to Jeffrey Epstein, the financier and convicted sex offender. L Brands declined to comment, characterizing the report as a rumor.
The retail group has a history of selling or separating businesses, including The Limited, Express, The Limited Too (now Justice), Lane Bryant, New York & Co. and Abercrombie & Fitch.
Besides Victoria’s Secret, L Brands’ other main businesses is Bath & Body Works. The latter has proven itself to be resilient: As other legacy brick-and-mortar retailers falter, it continues to grow. The brand recently had comparable holiday sales of 9%, while Victoria’s Secret went in the other direction with a 12% decline. However, unlike Gap and Old Navy, the personal care brand and the intimates banner don’t overlap as much, so the negative impact on cost savings would be mitigated.
Meanwhile, mall operator Simon Property Group and brand manager Authentic Brands Group is weighing an offer to buy Forever 21, the independently owned fast fashion retailer that filed for Chapter 11 bankruptcy last September, a source familiar with the situation told Adweek. A deal could mirror the acquisition of Aeropostale in 2016 by Authentic Brands, General Growth Properties and Simon Property Group.
Apparel conglomerate PVH, the parent of Calvin Klein and Tommy Hilfiger, is exploring further divestitures of its heritage brands. This news comes just weeks after PVH’s $170 million sale of the North American license for Speedo to Pentland Group, according to a source familiar with the situation. PVH’s heritage brands include Van Heusen, Izod, Arrow, Warner’s, lingerie brand Olga and Geoffrey Beene.
The source told Adweek that PVH has explored similar divestitures in the past. The company’s challenge, however, was to obtain a valuation multiple for the businesses in line with its enterprise value, and therefore be compensated for the loss in cash flow.
VF, the parent company of brands such as The North Face and Timberland, is also considering a sale of some of its brands as it explores strategic alternatives for its work segment, according to the conglomerate. The work segment, focused on specific occupations, largely consists of Red Kap, Kodiak, Terra, Bulwark, Horace Small, VF Solutions, Work Authority, Workrite Fire Service and Walls Outdoor Goods. The nine brands generated $865 million in revenue and $130 million of adjusted operating income last year.
In other deal activity, J.Crew plans to separate sister brand Madewell, as the brand filed to go public in September. Complicating an IPO is J.Crew’s debt. Lenders approved of the move, with the retailer able to use proceeds to either reinvest in the company or repay debt. Despite the IPO, Moody’s Investors Service, Fitch Ratings and S&P continue to watch J.Crew for potential default.
Last but not least, designer denim brand NYDJ is also exploring a sale. Formerly known as Not Your Daughter’s Jeans, the brand continues to tout its emphasis on inclusivity, launching a body positivity-focused ad campaign last fall.