PE firms to pay $42m for struggling US clothing brand

A special situations firm has teamed up with a mid-market retail focussed shop to buy Ellen Tracy from parent company Liz Claiborne.

US fashion and beauty giant Liz Claiborne will sell women’s apparel brand Ellen Tracy to a private equity-led consortium for up to $42 million (€29 million). Liz Claiborne purchased the brand for $170 million in 2002 from Ellen Tracy founder Herbert Gallen and fashion designer Linda Allard.

The buying consortium is led by two mid-market US firms: Radius Partners, a special situations investor, and Windsong Brands, which targets consumer companies and frequently invests in clothing companies. Other investors include former chief executive of Starwood Hotels and Resorts Barry Sternlicht and Marvin Traub, the former CEO of high-end department store chain Bloomingdale’s

Liz Claiborne company said the purchase price of $42 million includes a $27.3 million cash payment subject to inventory adjustment at closing and a contingent cash payment of up to $15 million based on brand performance from 2008 through 2012. Liz Claiborne will retain approximately $8.2 million in working capital, excluding inventory. The deal is expected to close in the second quarter of 2008.

Radius managing director Stuart Jamieson and Windsong chief executive Bill Sweedler said in a statement they see value in the troubled company and plan to “return the Ellen Tracy brand to the prestigious status it enjoyed throughout its history”. According to a statement from Liz Claiborne head William McComb,,a “substantial majority” of Ellen Tracy employees will be retained following the sale.

Fashion media outlets have reported rumors regarding the imminent sale of Ellen Tracy since at least early January, with Fortune’s fashion blog naming American Capital as the potential buyer.

In July 2007, Liz Claiborne announced the strategic review of 16 of its brands, as it wants to better focus its attention on growing the Juicy Couture, Kate Spade, Lucky Brand Jeans and Mexx brands. To date, 14 of the 16 brands have been reviewed with reviews of Kensie and Mac & Jac to be completed by the end of the first quarter in 2008.

Radius targets special situation investment opportunities in both growth and distressed mid-market companies.  The firm has previously invested in a number of companies producing building materials. Windsong focusses on mid-market consumer companies already having strong recognizable brands such as Patrón tequila and Joe’s Jeans.