Lucky Brand Jeans Sold to Los Angeles Private-Equity Firm

Fifth & Pacific Companies, which used to be known as Liz Claiborne Inc., has agreed to sell Lucky Brand Jeans for $225 million to Leonard Green Partners, a Los Angeles private-equity company. The deal should close in early 2014.

The transaction, announced Dec. 10 and approved by the board of directors on Dec. 8, involves a $140 million cash payment and $85 million in a three-year seller note which carries $8 million a year interest plus another $417,000 a month interest for a maximum payment upon maturity of $100 million. The note can be paid off at any time.

The $225 million purchase price is equivalent to seven times Lucky Brand’s earnings before interest, taxes, depreciation and amortization, also known as EBITDA.

Lucky Brand Jeans, whose headquarters are in the Arts District of downtown Los Angeles, has been a profitable entity for Fifth & Pacific. In the first nine months of this year, Lucky had $346.4 million in net sales compared to $324.3 million during the same period in 2012.

Gene Montesano and Barry Perlman, who started Lucky Brand in 1989, sold 85 percent of the company to Liz Claiborne in 1999 for $125 million.

Fifth & Pacific has been shopping the label around for some time as well as other concerns. Recently the apparel venture sold the intellectual property rights for its Juicy Couture brand, another Los Angeles label, for $195 million to Authentic Brands Group. Juicy Couture saw sales drop to $310 million during the first nine months compared to $345 million last year.

Over the past few years, the New York–based Fifth & Pacific has been shedding a host of labels acquired over the years when the clothing company was gobbling up popular labels to boost its business. Fifth & Pacific, which changed its name last year, will now concentrate on its lone label, Kate Spade, which during the first nine months of 2013 had $487.5 million in sales compared to $289.2 million during the same period last year.

“It is truly an historic day at Fifth & Pacific Companies—a return to our roots as a mono-brand company. Just as I indicated back on Oct. 7 when we announced the Juicy Couture deal with Authentic Brands Group, the decision to sell Lucky Brand Jeans is the result of a process we began last year—studying our resource allocation needs, our capital structure, and the operating risks and opportunities associated with a multi-brand portfolio. Simply put, it is the outcome of our work to identify the best way to unlock shareholder value,” said Fifth & Pacific Chief Executive William McComb.

“Taken together, the deals we have announced recently related to our divestitures of Juicy Couture and Lucky Brand Jeans result in estimated net proceeds of $370 million to $380 million, which includes the face value of the seller note in today's transaction. The aggregate net proceeds for the two transactions reflect estimated cash restructuring and other transition costs and charges associated with the assignment or termination of leases, severance and other associated operating company transition activities, including estimated costs and charges previously disclosed at the time that the Juicy Couture deal closed,” he added.

In the deal, Lucky Brand will assume its share of sourcing established by Fifth & Pacific with Li & Fung, a Hong Kong–based company that produces clothing for a number of companies around the world.