Authentic Brands' Sparc Inks Stalking Horse Agreement for Brooks Brothers

Sparc Group, the retail operating platform controlled by brand management firm Authentic Brands Group and mall operator Simon Property, won the stalking horse position in a bid to buy Brooks Brothers with a $305 million offer as part of that retailer's Chapter 11 bankruptcy process. The stalking horse nature of the asset purchase agreement, which entails acquiring the retailer as a going concern and includes 125 stores, means that it is still subject to higher offers. Sparc emerged as the stalking horse after winning a competition to provide $80 million in debtor-in-possession (DIP) financing to Brooks Brothers at 0% interest and no closing fee about two weeks ago, according to investment bank PJ Solomon, which is providing financial advice to the apparel retailer. A court hearing to approve the stalking horse is slated for Aug. 3. The deadline for competing offers is set for Aug. 5, while the hearing to approve the sale will be held on Aug. 11. Sparc already supports more than 2,600 stores and shop-in-shops, ecommerce and wholesale for the Aéropostale and Nautica brands, with over $2.7 billion in global retail sales annually. The purchase agreement with Brooks Brothers, founded in 1818, is the latest in a series of transactions struck by Authentic Brands in recent months that includes Barneys New York, Forever 21 and perhaps Lucky Brand, the latter of which is also yet to be finalized. If Authentic Brands succeeds in its deal for Lucky as well as Brooks Brothers, that could potentially add some $2.2 billion in systemwide sales to its top line. Before the pandemic, Lucky was said to generate revenue on an annualized basis in the ballpark of $1.2 billion, while Brooks Brothers' revenue was somewhere in the vicinity of $1 billion. The opportunity for Brooks Brothers lies in licensing the brand overseas, while restructuring operations here in the U.S. The deal for Brooks Brothers follows the clothier's filing for Chapter 11 bankruptcy protection on July 8. The company, which has clothed both financiers and presidents, is among a number of retailers that have had to seek bankruptcy protection as the pandemic continues to take its toll, the latest of which was Ascena, the parent of Ann Taylor and Loft. The retailer was already conducting an “evaluation of various strategic options” prior to the pandemic, including a potential sale. It previously secured a $20 million term loan in late May from Gordon Brothers, which values, acquires, restructures and invests in underleveraged, distressed or dormant intellectual property. In addition, Brooks Brothers is selling off its manufacturing facilities, such as its plant in Massachusetts, for $14 million to Eastern Real Estate. It also owns factories in North Carolina and New York. These factories produce about 6.8% of its finished goods, including suits, ties and some shirts. The retailer has also either closed or is in the process of closing 51 of its U.S. stores. Brooks Brothers operates over 200 stores in North America and 500 locations in 45 countries. In all, it has more than 1,400 point-of-sale locations worldwide. The company claims to have been the first American brand to offer ready-to-wear clothing and introduced innovations such as the seersucker, madras and argyle patterns, the non-iron shirt and the original polo button-down collar.