B. Riley Financial Inc. is taking a bigger stake in Bebe Stores Inc.
The company inked an agreement with Bebe founder Manny Mashouf to acquire 3.7 million shares of the firm at $5.00 apiece in a deal valued at $18.5 million. If the deal closes as expected on Sept. 30, B. Riley will control 76 percent of the company’s common shares, giving Mashouf just 4 percent.
Mashouf plans to step down “in the near future” from leadership roles at the women’s contemporary fashion brand he founded in 1976.
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“It has been an extraordinarily memorable and rewarding journey creating bebe into an iconic brand that has embodied the fashion-forward woman with the confidence to be her best self,” he said. “I am beyond grateful to the many individuals who have contributed to making my vision a reality throughout the years, including the B. Riley team.”
The brand known for party-girl outfits caught the attention of activist investor Prentice Capital Management in 2016 over possible conflicts of interest with a board member who was nominated to the board of a women’s retailer. By that time, Bebe’s finances were falling apart.
On the verge of bankruptcy, Bebe managed to recover by closing all 170 stores in 2017. It pivoted to an online-only model through a new joint venture (JV) with Bluestar Alliance LLC, a brand management firm. Under the JV, Bebe contributed its trademarks and other intellectual property, while Bluestar contributed $35 million that was paid to Bebe. Bluestar manages and develops the JV’s wholesale domestic and international licensing business while Bebe collects royalties.
B. Riley was Bebe’s lender. In 2018, it converted Bebe’s $16.9 million loan into 2.82 million shares of common stock. The lender acquired another 250,000 shares, giving it a 29 percent stake in the fashion brand.
Three years ago, Bebe acquired 47 Buddy’s Home Furnishings rent-to-own franchises from Franchise Group, plus the rights to open “additional franchises” in the Southeastern U.S. for $35 million. Bebe paid for the deal through cash on hand, a $22 million secured loan from Milfam and the sale of 1.5 million common shares to B. Riley at $5 a share.
