The Deal: Men's Wearhouse Gains on Abboud Acquisition

NEW YORK ( TheDeal) Private equity firm J.W. Childs Associates LP exited portfolio company JA Holding Inc. in a sale to Men's Wearhouse ( MW) for $97.5 million, the retailer announced Thursday, July 18.

The Boston private-equity firm, which acquired the fashion company for $73 million in March 2004, earned ''approximately 2 times'' in its equity investment in the sale, according to J.W. Childs partner Adam Suttin. J.W.

Men's Wearhouse shares gained 0.5% to close on Thursday at $39.15.

Childs had acquired the company from Italian publisher RCS MediaGroup.New York-based JA Holding is the parent company of clothing brand Joseph Abboud. Its other brand names include Joseph Abboud, JOE Joseph Abboud, Joseph Abboud BOYS and Joseph Abboud Home.

Menswear designer Joseph Abboud, the founder and creator of the brand, has served as chief creative director of Men's Wearhouse since December 2012.

The transaction includes ownership of JA Holding's U.S. tailored clothing factory in New Bedford, Mass., that employs 450 people. The deal is expected to close in the third quarter of 2013.

Men's Wearhouse had $155 million in cash and no debt as of May 4, according to regulatory filings meaning paying for JA Holding would hardly put a dent in the company's balance sheet.

Men's Wearhouse president and CEO Doug Ewert said in a statement that he expects the addition of the Joseph Abboud exclusive brand to enhance margins and profitability and become accretive to earnings in fiscal year 2014.J.W. Childs had attempted to sell the company before striking a deal with Men's Wearhouse, according to sources. Suttin confirmed that the firm "had other conversations" with potential suitors, but declined to reveal who those other suitors were.

Since it put JA Holding on the block since early 2011, bidders have come knocking but not at quite the right price. Among the rumored potential buyers that had looked at JA Holding were Chicago's HMX Group, which was said to have offered $90 million, and Iconix Brand Group, which had been close to a done deal, according to Women's Wear Daily, also at about $90 million.

J.W. Childs acquired JA Holding via its 2002 $1.86 billion fund, the last institutional fund it raised. After the sale of JA Holding is completed, the fund will still have five other portfolio companies, Suttin said, declining to say if the firm is actively seeking to exit them. He also would not comment on the firm's plans about another private equity fund raise.

Men's Wearhouse, meanwhile, said it remains committed to its $200 million share repurchase program announced in March. The company expects to finance this acquisition and its share repurchase program with cash on hand and/or proceeds from its existing credit facility.

The acquirer is going through a transition that included ousting its co-founder and chairman George Zimmer, who is considering teaming up with private equity to make an offer.

However, the company has said it is opposed to being sold, primarily because of the leverage the retailer would have to take on to do the transaction.

Men's Wearhouse stock was up over half a percent to $39.19 a share in afternoon trading Thursday, giving it a market cap of nearly $2 billion.For the buyer, the JA Holding acquisition will help it keep up with the larger trend of retailers acquiring brands.

A number of department stores such as J.C. Penney Co. Inc. and Macy's Inc., among others, use exclusive brands as a selling point. For example, J.C. Penney struck a deal to acquire the Liz Clairborne and Monet brands from what is now known as Fifth & Pacifc Cos. for $268 million in Oct. 2011.

J.P. Morgan Securities LLC is serving as financial adviser to Men's Wearhouse, and Willkie Farr & Gallagher LLP is serving as legal adviser. Kaye Scholer LLP is serving as legal adviser to JA Holding and North Point Advisors is serving as financial adviser.

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