SPAC snatches retailer

Among the highest-profile deals of its kind, Los Angeles retailer American Apparel is being acquired by special-purpose acquisition company (SPAC), Endeavor Acquisition.

American Apparel, a retailer known for its casual cotton apparel and provocative advertising, will be acquired by Endeavor Acquisition in a deal worth approximately $244 million (€185 million).

Endeavor is a special-purpose acquisition company, or SPAC, often called a “blank-cheque” company, launched and taken public specifically for the purpose of making one or several acquisitions. The company raised $129.3 million in a December 2005 IPO.

A number of SPACs have launched in the past two years, causing some in the private equity industry to wonder whether these will mean more competition in the US middle market.

Endeavor was founded by Jonathan Ledecky, who founded US Office Products, and Eric Watson, who founded a retail company Blue Star Group, which was sold to US Office Products.

Endeavor will acquire American Apparel for up to 32,258,065 shares of restricted Endeavor stock. The deal involves $110 million of debt outstanding. A $2.5 million bonus pool and restricted shares are being set aside for American Apparel employees.

American Apparel is based in Los Angeles and led by Canadian entrepreneur Dov Charney. The company had EBITDA of $30 million this year, according to a press release. Charney said the capital infusion would be used to help the company expand. He noted that American Apparel’s downtown LA manufacturing facility currently has the capacity to produce more than 1 million T-shirts per week. The company manages 143 retail locations.

In May, former Apollo Management partner Michael Gross filed to take public a SPAC called Marathon Acquisition. The company went public in November, raising $300 million. Another SPAC, Freedom Acquisition Holdings, is seeking to raise as much as $400 million.