A little outfit called Sycamore Partners has come to the rescue of a few of America's favorite brands in recent years. Did I say favorite? Just kidding -- these are dying brands. Companies such as Talbots, Hot Topic, and Nine West have all seen buyouts or major investments from Sycamore, sometimes staving off corporate death. Most recently, Aeropostale (NYSE: ARO) took a $150 million line of credit with Sycamore just last week.
Aeropostale's Sycamore ties
Before last week's credit injection, Sycamore Partners had already taken out an 8% stake in Aeropostale. Since the announcement of its position last September, Sycamore has watched Aeropostale's stock fall 57%, as sales, margins, and income have all been crushed. Investing in the remnants of brands is Sycamore's shtick, though, so it was happy to offer up millions of dollars to this American icon.
It didn't hurt that Sycamore Partners was able to appoint two board members at Aeropostale. It looks like the sort of thing you would do if you thought, "Hey, this loan might not save this company. Maybe we can buy it in a year or two." The company also secured an agreement to have Aeropostale source $240 million to $280 million of its product from MGF Sourcing, another Sycamore brand.
If it comes to it, Sycamore would be well positioned to manage Aeropostale, as it has had plenty of experience with its portfolio of other brands. The one thing that the company hasn't done is to spin one of its retailers back into the market.
A brief history of Sycamore Partners
The lack of a return to the market isn't so much a function of Sycamore's management style as it is of its age. Sycamore Partners was founded in 2011 by Stefan Kaluzny, one of the new Aeropostale board members. Kaluzny had been a principal at Golden Gate Capital before he left to form his own band. He also spent time on the boards of Zale and Express.
A year after its doors opened, Sycamore Partners started buying. It purchased Talbots for $391 million in 2012. The next year, it picked up Hot Topic for a cool $600 million. It put $150 million on the line for Aeropostale this year after buying the Jones Group for $2.2 billion earlier in 2014. Sycamore quickly split the Jones brands into four separate businesses, making it easier to spin them off separately in the future.
The future of Aeropostale and Sycamore Partners
During its initial investment in Aeropostale, Sycamore called the teen retailer an "attractive investment" without offering a whole lot of detail about what that meant. At the time, analysts predicted the investment would be a first step to Sycamore's eventual ownership of Aeropostale. The main attractiveness of the business seems to lie in its poor management.
Falling sales and weak margins have been pinned on poor vision at the top; some analysts believe, with solid financial management, the business could finally return to growth. I'm not in that boat. Aeropostale still seems like a long shot, even when cast in the best light. The brand's weakness, coupled with management's poor strategy, has put the company on its heels, and there's no clear path to growth. Sycamore obviously sees something more, though, and I wouldn't be surprised to see Aeropostale go private within a year.