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Tarrant Apparel To Acquire The Buffalo Group For Up To $120 Million
December 11th, 2006 No comments
Tarrant Apparel Group, a design and sourcing company for private label and private brand casual apparel, announced recently that it has entered into a definitive agreement to acquire certain assets and entities comprising the Buffalo Group. The purchase price of up to $120 million consists of approximately $40 million in cash, $15 million in promissory notes, shares exchangeable into a total of 13 million shares of Tarrant Apparel Group’s common stock, earn-out payments of up to $12 million based upon the Buffalo Group achieving certain earnings targets over the next four years, a contingent payment if Tarrant Apparel’s stock does not reach a minimum price over the next five years, and the assumption of debt. The Buffalo Group is a designer and manufacturer of contemporary lifestyle brands and had revenue for the first nine months of fiscal 2006 of $75 million. It had revenue of $104 million for fiscal 2005.
The Company anticipates completing the Buffalo Group acquisition during the first quarter of 2007, and expects the acquisition to be accretive to the Company’s 2007 earnings. The completion of the acquisition is subject to a number of conditions, including approval of the Company’s shareholders, the Company’s receipt of financing, obtaining certain third party approvals and other customary closing conditions. Guggenheim Corporate Funding, LLC is expected to provide the Company financing for the cash component of the transaction. Durham Capital acted as advisor to Tarrant Apparel in connection with the financing.
Founded in Canada in 1985, the Buffalo Group’s main focus is contemporary lifestyle brands. The Buffalo Group’s product line includes womenswear and menswear, along with a diverse range of products, which include belts, shoes, lingerie and sleepwear, kids, wear, watches and home dcor operated under licensing agreements. In addition, products in development include sunglasses, swimwear and fragrances.
The Buffalo Group operates 45 retail locations in Canada under the Buffalo by David Bitton name. It also distributes its clothing through upscale retailers such as Bloomingdale’s, Nordstrom’s, Fred Segal’s and Macy’s East and West. The Buffalo Group currently has approximately 200 stores within stores. The company’s target audience is women and men ranging from approximately 16 to 35 years of age.
The Buffalo Group’s recent growth has been driven by its U.S. wholesale operations. Buffalo Group sells its apparel to Macy’s, Lord & Taylor, Bloomingdale’s and Nordstrom’s. In addition to strong growth in North America, Buffalo has a strong brand presence in the UK, Latin America, Mexico, Southeast Asia and the Middle East, with growing presence in Italy, Greece, Ireland and other locations across Europe operated under licensing agreements.
“We believe this transaction will enhance Tarrant Apparel’s growth by creating powerful marketing synergies,” said Gerard Guez, Chairman and Chief Executive Officer of Tarrant Apparel Group. “Buffalo has outstanding relationships with key retailers that we can use as a platform to sell additional products. In addition, Buffalo is a major brand in Canada through the broad coverage it has via its retail locations. We expect that we will be able to build on its reputation in Canada through the opening of additional locations, and anticipate expanding the retail business into the U.S. The acquisition will also enhance Tarrant Apparel’s margins through a higher level of Private Brands business, and better diversify the Company through a well balanced mix between men’s and women’s clothing. I look forward to working closely with Gaby Bitton and the other four brothers who have played such an instrumental role in Buffalo’s success. With the infrastructure to support a significantly greater business than we have today, we believe the combination of the two companies will result in greater efficiencies and improved results for shareholders.”
Following completion of the transaction, Gaby Bitton will serve CEO of the acquired businesses and will be appointed to the Company’s Board of Directors. The other four Bitton brothers, Charles, David, Gilbert and Michel will also hold senior level positions in the new company. The sellers also will have the right to appoint a second member to Tarrant Apparel’s Board of Directors.
“We are excited to enter into this agreement with Tarrant Apparel,” said Gaby Bitton. “The combination of the two companies will result in a significant retail presence for Buffalo to sell its products, and we believe, a better balanced company which has strong relationships with leading retailers and a dynamic mix of products in the Private Brands and the branded wholesale businesses. We look forward to working closely with Tarrant’s management team to help create an even stronger company from the existing businesses of each organization.”
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