Prana acquired by Liz Claiborne

Making public an acquisition that SNEWS® had been quietly bird-dogging since Outdoor Retailer Summer Market, Prana announced late in the afternoon on Nov. 3 that it had been acquired by Liz Claiborne. The purchase price was approximately $34.4 million, with an initial payment of $32.5 million and the retirement of debt at closing estimated at $1.9 million. The initial payment represents 60 percent of Prana's current valuation. As has become tradition with any acquisition by Claiborne, co-owners Beaver Theodosakis, Pam Theodosakis, and Demian Kloer are locked into a long-term earn-out with additional payments in fiscal years 2008, 2009 and 2010 based on a multiple of Prana earnings. Insiders told SNEWS® that if Prana performs as well as Claiborne hopes, the final earn-out will be nearly three times sales, which are estimated to be just over $30 million currently.
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Making public an acquisition that SNEWS® had been quietly bird-dogging since Outdoor Retailer Summer Market, Prana announced late in the afternoon on Nov. 3 that it had been acquired by Liz Claiborne.

The purchase price was approximately $34.4 million, with an initial payment of $32.5 million and the retirement of debt at closing estimated at $1.9 million. The initial payment represents 60 percent of Prana's current valuation. As has become tradition with any acquisition by Claiborne, co-owners Beaver Theodosakis, Pam Theodosakis, and Demian Kloer are locked into a long-term earn-out with additional payments in fiscal years 2008, 2009 and 2010 based on a multiple of Prana earnings. Insiders told SNEWS® that if Prana performs as well as Claiborne hopes, the final earn-out will be nearly three times sales, which are estimated to be just over $30 million currently.

SNEWS® has also learned that Claiborne was not the highest bidder. Beaver said this deal was more about finding a right cultural fit and partner than adding a few more million to the bottom line.

"There were three other deals that were a lot higher than this," Beaver told SNEWS® in a long conversation to announce the deal – his first with any press. "We sat with our dream outdoor apparel and sports companies and in the end none of them held a candle to Liz. We chose Liz because of the people and the cultural compatibility."

More similarities than differences upon closer inspection
While the choice of Liz Claiborne may leave some outdoor-focused folks scratching puzzled heads, it appears to be more of a perfect fit for Prana than any would have thought. They have similar roots, a similar product mix, and a commitment to charitable giving, environmental protection and worker rights:

1. Similar roots -- Consider that Claiborne was co-founded by the company's namesake, a woman, her husband and two other partners in 1976, although now is run by a man, CEO and Chairman Paul Charron. Of the company's 17,000 employees worldwide, 75 percent are women, and 70 percent of the company's general managers are women. The only person answering directly to Charron is a woman, and under her there are five group presidents, four of whom are women. Compare that with Prana, founded 13 years ago, also by a husband and wife team along with a third partner.

2. Similar product mix -- Not surprisingly, 85 percent of Claiborne's products are for women with a split of 85 percent apparel product and 15 percent accessories. If one believes that the majority of products for women are purchased by women, and a large percentage of products for men are purchased by or have the purchase influenced by women, it is no stretch to estimate that 90 percent of the Liz Claiborne's product purchases are made by women. Prana's product selection is more balanced, but still skewed toward women, with 55 percent of the SKUs for women. Prana tells us that 60 percent of the company's sales come from sales to women, and if you apply the same logic that women also influence sales by men, like Claiborne, the vast majority of Prana product is purchased by women.

3. Commitment to charitable giving -- Charron told SNEWS® that Claiborne is a very philanthropic company and the focus of that philanthropy is primarily toward women because, "the company reflects a woman's culture.

"The Liz Claiborne Foundation provides between $1.5 million and $2.5 million every year to grubstake projects that will have a positive impact on women and their lives," Charron told us. "We partner with vital voices in the community and give the money out in $25,000 to $50,000 slugs for up to three years."

Not surprisingly, Claiborne also focuses efforts around the world, where the company has a substantial presence, because Charron believes the company can have the greatest influence in areas where it has the strongest presence.

With the addition of Prana, Claiborne now has five brands in its portfolio located in Southern California, so it is very likely that Claiborne will soon focus efforts on helping women in that region too.

Claiborne has programs in place, Charron said, that encourage its associates, as it calls employees, to get involved in the community by volunteering time and personal donations. Claiborne matches employee donations to charitable causes serving the arts, health, education, environment and human services. In addition, through a program called LizActs, associates are placed with local non-profits helping women and families in need.

4. A commitment to environmental protection -- Prana too is very much about supporting community, environmental and charitable giving programs, and Beaver told us he's most excited about being able to tap into the Claiborne resources to hopefully expand Prana's current sphere of influence.

That sphere of influence has already had one major impact; Prana's commitment to wind-power and energy conservation inspired Claiborne to announce on the same day it made public the news of the acquisition that it would offset 100 percent, or close to 25,000 megawatt hours of electrical consumption, of its New Jersey headquarters with wind power.

Charron told SNEWS® that his company's focus on the environment had thus far been limited primarily to a worldwide corporate effort in waste reduction, recycling and resource conservation. However, he added, the opportunity to have a lasting impact and demonstrate corporate leadership by following Prana's example of sustainable business practices through adopting the wind-power initiative was a next and very natural step.

5. Worker rights -- Both Prana and Claiborne are on the same page when it concerns worker rights on a global scale. Now that Prana is part of Claiborne, Beaver acknowledged it suddenly had a lot more clout and the power to influence change.

"We realize that we have a great deal of influence in determining working conditions around the world and we have always tried to do the right thing in terms of responsible production," Charron told SNEWS®.

Claiborne's compliance program is accredited by the Fair Labor Association -- an association developed from a White House Task Force in which Charron participated 10 years ago. The association mandates the payment of a minimum wage or prevailing industry wage (whichever is higher) for workers. It also prohibits child labor and restricts working hours, among many other guidelines designed to ensure workers are treated with respect, compassion and integrity.

Claiborne is a company that embraces and encourages the entrepreneurial spirit
If history is a roadmap to the future, then that bodes very well for what this acquisition means for both Liz Clairborne and Prana. More often than not, owners of companies acquired by Clairborne opt to stay with the company and renew contracts, even after the initial buyout contract has expired. Sigrid Olsen, acquired in 1999, is still run by Sigrid Olsen. Lucky Brand Jeans, acquired in 1999, is still run by founders Gene Montesano and Barry Perlman. Mexx, acquired in 2001, is still directed by former owner Rattan Chadha. Mexx Canada, acquired in 2002, is still run by founder Jospeh Nezri, who also oversees all Claiborne's operations in Canada. Pamela Skaist-Levy and Gela Nash-Taylor, former owners of Juicy Couture acquired in 2003, have recently extended their contracts. Charron also said it is likely Claire Stansfield and Cheyann Benedict of C&C California, acquired in 2005, will do the same.

"The fact that quite a few owners of brands that Liz has acquired are still actively involved with running their brands was just another reason Pam and I really felt good about this deal," Beaver told us, while confirming that he was not only contractually obligated to stay with the company through 2010, but emotionally bound as well.

And that is that emotional connection to the brand that speaks volumes to Charron.

"If this was a surfing company or a skate or snowboard company, it would not surprise me to find the principles were out surfing or boarding at lunch, living the lifestyle, and that is just great," said Charron. "If Beaver was not a climber and Pam not so connected to the yoga lifestyle the company would not be what it is.

"Living the lifestyle and living in synchronicity with the world around them is not only good business, it is very good positioning for the brand," Charron said.

"We will only acquire businesses that are on strategy and into market segments that we like and want to get into. Prana fits that," added Charron. "We look for transactions that are financially attractive with significant growth ahead. And, finally, I only will buy a property that exhibits what I term 'manageable executional risk.' By that I mean I will only buy a company that fits in a space that I already know and understand, or a company where there are like-minded and right-minded owners who will stay with the firm and help us understand the space they are in. Prana is such a company.

"We paid at the top end of what the property was worth," he said. "We have also got Pam and Beaver and Demian's skin in the game, which is essential to the brand's success."

What does this acquisition likely mean for retailers carrying Prana?
First, forget the notion that specialty outdoor retailers will be "encouraged" in any way to begin carrying other Liz Claiborne brands. Beaver told us that Prana will be focused on selling Prana and only Prana 100 percent of the time.

If retailers can expect anything from this move, it will be realized in terms of better sizing consistency, improved finish and quality of product, and even better delivery consistency, according to Beaver.

How? Prana now has access to a well-established and well-honed infrastructure to support orders and sales with, according to Beaver, a very technologically advanced IT, back-end and administrative support systems.

Distribution will remain focused on specialty, but also on careful growth
"Prana will remain a specialty brand!" Beaver told us.

Although he would not elaborate on Clairborne's expectations for brand growth, Beaver did tell us that he expected to maintain at least the current level of growth – 20 percent annually or more -- for the next five years.

The plan, according to Beaver, is to look to expand the brand's presence in each of its current 920 or so North American dealers. In addition, Prana expects to expand on the number of dealers carefully by filling in regional gaps where the brand's presence is currently absent.

International business accounts for approximately 12 percent of Prana's revenue currently, Beaver confirmed. It is also an arena Prana is counting on heavily for the majority of its growth numbers.

"International development is a big initiative for us and I would like to see us expand the distribution we already enjoy in 27 countries. We see a lot of opportunity in Europe and Japan, for sure," said Beaver.

Ideally, Beaver told us, he'd like to see Prana's distribution mix become more balanced -- about 50 percent domestic distribution and 50 percent international.

"Our core retailers in the U.S. are our heritage and where we belong. Ideally, we will use other parts of the world to achieve the growth we need," added Beaver.

Underscoring Beaver's commitment to specialty, Charron told us, "We have zero interest in watering down the distribution. We did not acquire Prana to change the company's culture. We like what we see. For us, this is an opportunity for me to do business with outdoor specialty retailers which is something I have wanted to do for some time."

Look for Prana to expand into related, but as yet unexplored product categories
"We now have the opportunity to explore brand and product extensions that we have dreamed about, thought about, and even penciled in as things we'd like to try, thanks to the resources and support Liz brings us," said Beaver.

"We have not completed a formal plan as yet, so I can't say what the sequence might be, but we have looked at expanding our slowly growing accessory line, adding clothing and product items for the younger generation, maybe even add media, like yoga and mindful CDs, and perhaps a line of organic foods."

It is through the expansion of product lines and categories appropriate for Prana that Charron sees the greatest opportunity to increase sales, and further underscores his commitment to expand without watering down distribution.

"When we acquired Juicy, it was doing $47 million. It is now doing $300 million, and we have not opened a single new point of distribution," Charron told SNEWS®. "What we have done, for the most part, is extend the brand's lifestyle so it appeals to men, women, kids and we have taken them into accessories, and believe me, Clairborne understands the accessory business. We have the resources and knowledge to help Prana in a similar manner."

SNEWS® View: Several folks we contacted, after hearing that Claiborne acquired Prana, responded simply that "Oh, so Beaver has sold out." To that we say simply, you clearly don't know Beaver, don't know Clairborne, certainly don't know Paul Charron, and appear to be in the habit of speaking before your brain is fully engaged. First, Beaver and Pam, and Demian Kloer have earned every penny of whatever millions they receive.

Beaver founded Life's a Beach 22 years ago, and then lost the company, getting out with little more than the shirt on his back and a suitcase full of lessons. He took that knowledge and launched Prana out of a garage with Pam and Demian 13 years ago, paying for fabric by hook or crook. From the company's first six retailers (all of whom are still Prana retailers today) to the company's first $1 million in sales, being in business has never been about money for the three. Beaver is one of those rare individuals who is living proof that if your business is a by-product of your passion and desire, the money and success will naturally follow. We should all be so fortunate.

As for Charron, we can see how Pam and Beaver felt the connection with Claiborne that they did. In our 45-minute interview with Charron, he was as personable, humble, humorous, self-effacing, and genuine as any person we've ever had the pleasure of engaging in conversation. Never mind that he is the CEO and chairman of a multi-billion dollar Fortune 500 company with over 42 brands under his direction. It didn't matter to him, or to us. And that's what makes this, at least on paper and in the honeymoon stages, such a perfect acquisition and marriage. A marriage that is, it appears, bringing together like-minded individuals with like-minded goals and passions.

If there is any surprise in this deal at all, it is that while we knew Prana was for sale well before Summer Market, and while we kept sniffing around for clues, the lid on this deal stayed closed tighter than the top on a freshly canned jar of jam. Yes, Claiborne did find its way onto our list of possible buyers, but it was only a guess, and only one of many we had to research to be prepared. A far cry from being certain. Nice job on the secrecy gang.

Finally, the Prana deal has no bearing on Beaver's little-known and infrequently publicized position as one of the founders and minority shareholders of sunglasses brand Spy Optic. He founded the brand in 1994 with two other friends, brothers Brian and Mark Simo. He tells us that he will remain on the board, working just one-half day per week as the "brand guardian" overseeing key decisions about marketing, design, and branding.

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