Authentic Brands Group has moved closer toward completing its second acquisition — Frederick’s of Hollywood.
ABG became the stalking horse bidder for the bankrupt intimates retailer, known for its racy lingerie. The ABG deal, signed in April, is for $22.5 million in cash plus an added, undetermined amount per a revenue-sharing agreement for the purchase of the company’s intellectual property assets and its online business.
While the bid — as is typical in a bankruptcy — was subject to better offers at a court-approved auction, that auction was cancelled, according to Delaware bankruptcy court records. A court document said the debtor didn’t receive any “qualified bids” by the May 25 deadline.
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Sources said that there were other potential bidders eying the company’s assets. Anyone interested would have been required to meet or be close to the financial equivalent of the ABG bid, plus the $850,000 breakup fee. Given the terms of the ABG deal, the baseline amount could have been difficult for potential bidders to ascertain. That’s because it wasn’t a flat $22.5 million cash offer. The revenue-sharing agreement would be based on projections ABG was tallying according to its plans for the business, and that wouldn’t necessarily reflect what another entity might have had in mind for the business on a going-forward basis.
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A hearing for Delaware bankruptcy court approval is scheduled for June 3. Approval would mean the second acquisition for ABG, which earlier this year acquired the Jones New York brand from private equity firm Sycamore Partners. Acquiring the Jones brand already catapulted ABG’s portfolio of brands to more than $4.5 billion in worldwide retail sales.
While ABG’s chief executive officer and chairman Jamie Salter declined comment on the Frederick’s of Hollywood transaction, he is expected to ramp up deal-making activity as he lays the groundwork to attract potential investors. Sources close to the company said an initial public offering is being discussed. ABG is backed by Leonard Green & Partners, and while no timetable has been set, the private equity firm is presumed to be seeking a return on its investment in ABG sooner rather than later.
Frederick’s of Hollywood is in its second tour of bankruptcy proceedings. The first was in 2000 due to a leveraged balance sheet from a buyout in 1997. The company emerged from bankruptcy in January 2003 and merged with Movie Star Inc. in January 2008. Renamed Frederick’s of Hollywood Group Inc., the company was faced was growing liquidity issues. That led to the company being taken private in May 2014 by an investment group led by Harbinger Group Inc. through a $24.8 million investment. Over the years, a slowdown in traffic at the malls coupled with burdensome leases gave rise to liquidity issues at the intimates chain. According to court documents, the last time the company was profitable was in 2007.
In the bankruptcy petition, the Los Angeles-based Frederick’s listed assets at $36.5 million and liabilities at $106 million.