Acquisitions can create great synergy for companies, such as lower costs and supply chain streamlining. This has been the case for big clothing designer Phillips-Van Heusen (NYSE:PVH) after it bought Warnaco to gain full control of the famous Calvin Klein brand. Likewise, VF Corp (NYSE:VFC) and Ralph Lauren (NYSE:RL) enjoy significant advantages after acquiring Timberland and the licensed Ralph Lauren apparel business in Asia, respectively.

The Warnaco deal could create a lot of synergy
PVH has expanded its footprint in the global apparel industry through acquisitions during the past ten years. It bought the Calvin Klein brand in 2003, Tommy Hilfiger in 2010, and Warnaco in 2013. By paying $2.9 billion to acquire Warnaco, PVH gains three benefits. First, the deal gives PVH direct global control of the Calvin Klein brand for two main product categories: jeans and underwear. Second, the company gains significant exposure to developing markets where Warnaco is growing rapidly, which include Asia and Latin America. Third, the deal can significantly improve the Calvin Klein brand's operating performance by leveraging PVH's own expertise and infrastructure in developed markets. 

The company expects that the annual cost-savings synergies could reach $100 million by the third year, while it will incur $175 million in one-time costs related to the acquisitions.  By acquiring Warnaco, the company effectively switches from the licensing model to a direct operations model for the Calvin Klein underwear and jeans businesses, thus reducing its operating margin to around 11.8%--60 basis points lower than 2012. Nevertheless, PVH considers this a long-term investment to drive savings and profitability for Calvin Klein. 

Acquisitions have also improved the performance of VF and Ralph Lauren
Two years ago, VF acquired Timberland in a $2 billion deal to create a $10 billion global apparel and footwear powerhouse in outdoor and action sports. The company expects that outdoor and action sports revenue will account for 60% of its total revenue by 2015. The acquisition has helped both VF and Timberland in terms of expertise exchange. While VF can leverage Timberland's footwear expertise, the apparel expertise of VF can be utilized for the Timberland business.

Because of the significant synergies between the two businesses, VF has experienced operating margin expansion. In the five year period from 2010-2015, VF estimates that it can grow its operating margin from 9% to 15%, and ultimately reach 18%. 

Ralph Lauren also experienced greatly improved operating performance after assuming direct control of its Southeast Asia distribution business in 2009. With this acquisition, the company can tap into fast-growing emerging economies in Asia, reinforcing its lifestyle positioning and leveraging its distribution in this region.  According to Bain & Company, total revenue from the luxury-goods market in Southeast Asia will increase by 20% due to a rising middle class and new store openings.  Thus, expanding business operations in Southeast Asia could essentially drive Ralph Lauren going forward. 

My Foolish take
Business acquisitions have been helping all three global apparel companies become more efficient and improve their overall profitability, driven by supply chain streamlining and lower SG&A expenses. PVH could easily follow Ralph Lauren's strategy by acquiring the Tommy Hilfiger distribution business in Asia and some other Calvin Klein brand licenses. With a forward earnings valuation of 16.5, PVH could be a reasonable pick for investors because of its expected synergies and potential growth.

Anh HOANG has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.