More Insights about Distressed Apparel Companies
- Posted by Michael Bigger
- on January 29th, 2013
Oscar Schafer, in this Barron’s roundtable column, makes an interesting argument for Quicksilver ($ZQK) the surfing and action sports apparel company. As a distressed investor, I bookmarked the following insights for future reference:
- Global apparel brands with an authentic and rich heritage are very valuable. In a world of free and perfect information they are harder to build since it is becoming increasingly hard to gain potential customers attention.
- The valuation needle can move to 10 to 15 times EBITDA for go private transactions.
- These brands get in trouble when they lever up too much for acquisitions or other expansion gambles. High levels of debt can be very risky.
- The recovery catalyst for these situations revolves around a commitment trimming the cost structure to allow operating earnings to reduce the debt load and interest expenses.
Our biggest position in distressed apparel is American Apparel ($APP). We believe that when $APP returns to optimal health, which should happen within two to three years, the company will generate 15% to 20% of sales in EBITDA at full capacity. At $800 million in revenues, the company could generate $120 million of EBITDA at a minimum.
How much is that worth?
The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.blog comments powered by Disqus
Michael Bigger is an investor and a trader who has been involved with trading technologies for more than twenty years. In 1992, Michael joined Citibank as head trader of U.S. single-stock derivatives, where he managed a $5 billion portfolio of equity derivatives. In 1998, he joined D.E. Shaw & Co., L.P. to trade the U.S. equity derivatives portfolio. (More)