Situation Overview

Joe’s Jeans (renamed Differential Brands Group Inc. (“DBG”) upon closing of the merger) was a publicly traded designer fashion brand created in 2001 by founder and creative director, Joe Dahan. The company sold premium apparel products through a wholesale channel of more than 1,200 high-end specialty retail stores as well as 33 company owned brick and mortar locations throughout the U.S. and abroad. In 2013, Joe’s Jeans took on a significant amount of debt in order to acquire the Hudson Jeans brand. This debt burden, coupled with a decline in the broader jeans market, ultimately caused the company to default on their loan facilities and consider strategic alternatives.

Because of Carl Marks Advisors’ track record in the retail sector, including deep experience in restructuring distressed apparel brands, the firm’s executives were engaged as chief restructuring advisor and exclusive investment banker.

Unique Challenges

Although both brands remained profitable, the integration Hudson Jeans with Joe’s proved to be more challenging than anticipated. The decline of the denim market as well as the departure of the company’s CEO caused Joe’s Jeans to run into difficulties and eventually default on its outstanding senior debt and subordinated convertible notes, forcing the company to explore strategic alternatives.

Results

Leveraging years of experience working with struggling retail, and more specifically, apparel brands, Carl Marks Advisors facilitated two separate transactions. The first transaction was the sale of Joe’s Jeans and all of its operating assets, to Sequential Brands Group, Inc. and Global Brands Group Holding Limited. The team at Carl Marks Advisors negotiated a forbearance agreement with the lenders that provided the time necessary to conduct an extensive marketing process during which bids were solicited for the assets of the company. The ability to run a fulsome marketing process and consider all transaction types, eventually led to the sale of Joe’s Jeans for a highly attractive price of $80 million.

The second transaction was a merger of the Hudson Jeans brand with the parent company of Robert Graham, a nationally recognized fashion brand. The combined company was renamed Differential Brands Group, Inc., and today is well-positioned to grow both organically and via strategic acquisitions. The merger was highly accretive to Joe’s Jeans shareholders.

Key Takeaways

  • Young, growing apparel brands are often led by creative types that act as both designer and CEO. These brands can significantly benefit from adding trusted business-minded executives early on in the life of the company to ensure the continued success of the brand – allowing clothing designers to maintain autonomy of creative decisions and financial advisors to handle business decisions.
  • Often times, distressed brands are not fully aware of their poor financial and operating situations. Many struggling brands wait too long to seek the expertise and support of financial advisors and restructuring experts, causing them to miss out on opportunities to reset business plans and correct the path toward growth.
  • When two businesses are combined, a cohesive strategy is needed from the outset to ensure the smooth integration of differing cultures, operations, and processes, as well as to realize possible synergies.