Brooks Brothers to Seek Court Approval of Sale to Sparc for $325 Million
Buyer is controlled by brand management firm Authentic Brands Group and mall operator Simon Property Group
Brooks Brothers, which filed for Chapter 11 on July 8, has zeroed in on a buyer and will seek court approval of its sale to stalking horse bidder Sparc Group at an Aug. 14 court hearing, the apparel retailer said Tuesday.
The acquirer, which is controlled by brand management firm Authentic Brands Group and real estate conglomerate Simon Property Group, won a competitive auction process conducted under bankruptcy protection with a $325 million offer. Investment bank PJ Solomon is the financial adviser for the deal.
As part of the agreement to acquire Brooks Brothers, Sparc has committed to keep open at least 125 of the banner’s approximately 200 locations, indicating that about 75 stores will likely be shuttered.
Sparc Group is the operating platform for the clothing brands Aeropostale and Nautica and generates royalties and rents for its owners, Authentic Brands and Simon, based on the revenue generated by the business.
Historically, such variable cost structures provide retailers with greater financial flexibility during recessions and crisis such as the Covid-19 pandemic.
Typically, retailers are burdened with costs that are fixed, such as rent owed, regardless of how the business performs. As the pandemic rages on, such fixed costs have proved to be the undoing of a number of retailers.
Brooks Brothers could ultimately thrive under such a variable cost structure.
Authentic Brands CEO Jamie Salter previously told Adweek that while his company and its operating partners extract royalties and rent from the brands it owns, they never do so to the extent that such payments cause the underlying business to be unprofitable.
The deal for Brooks Brothers could add around $1 billion in annual system sales, the amount the retailer generated prior to the pandemic, to Authentic Brands’ burgeoning empire, which encompasses the recent purchases of Forever 21 and Barney’s, among others.
America’s oldest apparel retailer’s future growth, and the opportunity in buying it, may depend in part on international expansion, which would likely involve partnering with retail operators overseas and other parties via licensing deals.
Though it remains to be seen how well the American preppy aesthetic might translate overseas, Authentic Brands has a solid track record in realizing large returns on such investments.
It’s worth noting that piror to its bankruptcy, Brooks Brothers was seeking a sale. But a restructuring under Chapter 11, which includes the closure of stores and freeing it from a pile of debt, made the asset more appealing as bidders could pick and choose among the assets they wanted.
The retailer has also either closed or was in the process of closing 51 of its stores in the U.S.
The company’s international entities and JV partnerships are not debtors in the Chapter 11 proceedings and will continue to operate. Brooks Brothers operates around 200 stores in North America and has 500 locations in 45 countries. In all, it has more than 1,400 point-of-sale locations worldwide.
