Tarrant Buys Canadian Rival
Tarrant Apparel Group, the long-time Los Angeles clothing company best known for its private-label blue jeans and its American Rag label sold at Macy’s and other Federated stores, announced it will acquire a long-time competitor for $120 million.
Tarrant’s founder, Chairman and Chief Executive Gerard Guez, said his company will acquire the Buffalo Group, based in Montreal. The Buffalo Group makes contemporary men’s and women’s clothing for 16- to 35-year-old customers and is also known for its hip denim wear. Its collections are sold in major United States department stores such as Bloomingdale’s, Nordstrom, Lord & Taylor and Macy’s. Early this year, it showcased its fashion at Mercedes-Benz Fashion Week at Smashbox Studios in Culver City, Calif. Guez was sitting in the front row.
The Buffalo Group also operates 45 stores in Canada under the Buffalo by David Bitton nameplate. Guez said plans were in the works to expand the Buffalo retail store concept to the United States in 2008 and later internationally. 3But retail isn’t the only advantage of the deal. Guez expects to see the transaction bring some cost savings as well as potential licensing deals.
“We expect the combined companies will be able to source product more efficiently, obtain better deals from suppliers and capitalize on a strong balance sheet,” Guez said.
The Buffalo Group will operate independently and keep its headquarters in Montreal, but it already has a design satellite in Los Angeles. Gaby Bitton, one of five Bitton brothers who have worked at Buffalo since it was founded in 1985, will be Buffalo’s chief executive officer.
“We are going to be doing business as usual,” Bitton said. “We believe strongly in this arrangement and that it is going to be a bigger and better company.”
Bitton said he and his four brothers—David, Charles, Gilbert and Michel—will own 33 percent of the combined company and continue to work actively for its growth. “For the past 21 years, my brothers and I have built a business that is widely recognized in Canada and has created significant progress for awareness of our brand in the United States and international markets. Today’s transaction accelerates that process.”
The purchase price consists of $40 million in cash, $15 million in promissory notes, 13 million shares of Tarrant Apparel common stock, earn-out payments of $12 million over four years if the Buffalo Group hits certain earning targets, a contingent payment if Tarrant Apparel stock does not reach a certain minimum price over the next five years, and the assumption of debt. Guggenheim Corporate Funding LLC is expected to provide financing for the cash portion of the purchase.
The Buffalo Group isn’t as large as Tarrant Apparel, which also was founded in 1985. In fiscal 2005, Buffalo’s revenues were $104 million. Tarrant’s revenues in fiscal 2005 were $214.6 million.
Tarrant Apparel has struggled lately to stay out of the red. The company has suffered major losses in recent years after it bought several blue-jean factories and denim mills in Mexico in 1999. The company sold those assets in 2003 and now does most of its manufacturing in Asia. The company had a net loss of $35.9 million in fiscal 2003 and a net loss of $104.7 million in fiscal 2004. In fiscal 2005, it had net earnings of $1 million.
Tarrant makes private-label blue jeans and other apparel for retailers such as Chico’s, Macy’s, Lane Bryant, J.C. Penney, Kohl’s, Sears, Roebuck & Co., Mervyn’s and Wal-Mart. Buying Buffalo helps Tarrant expand its retail possibilities and its bottom line.
“Buffalo has a higher margin than Tarrant, and we expect to have a more favorable mix of business as a result of the combination of the two companies as well as a better balance between men’s and women’s clothing,” Guez said. “We believe the Buffalo brand should be able to generate a 15 to 20 percent growth rate over the next four or five years.”
