Betsey Johnson Sells Majority Interest

[SomethingElse]

Betsey in a Cartwheel: Johnson Sells Majority To Castanea Equity

Despite turmoil in the credit and stock markets, private equity deals continue to flourish in the fashion world and the latest involves Betsey Johnson. The quirky contemporary sportswear and dress designer has sold a controlling interest in her company to Castanea Partners, a private equity firm based in Boston.

"It gives us really great growth opportunities," said Chantal Bacon, chief executive officer of Betsey Johnson. "For the past 30 years, we've really established a brand, and with their help we're going to take it to the next level."

Robert Smith, co-managing partner of Castanea Partners and the former co-chief executive officer of Harcourt General Inc. and vice chairman of the Neiman Marcus Group, said he has been talking to Johnson for several years and was attracted to the company's diversification, distribution and growth prospects.

"We watched the business evolve and develop over the past two to three years," said Smith, who added he was also aware of Johnson from his Neiman Marcus days. "I've known of the Betsey business. She's been an iconic and great creator of a fashion brand."

Currently, Johnson generates a little over $200 million in retail volume through its 51 freestanding stores and wholesale distribution, said Bacon. Neither Smith nor Bacon would divulge the exact percentage of Castanea's majority stake, nor the amount it paid. The deal was put together by The Sage Group, the Los Angeles investment firm.

Smith believes Bacon and Johnson "have a very solid partnership."

"They really took control of their own distribution, opening stores and expanding their licensing program. It adds significant dimension to it," said Smith. Further, he believes Johnson has developed a solid wholesale business.

"That attracted us. They're at the beginning of their evolution. Our hope is to really assist them in building the right team and to manage this growth and opportunity well," said Smith.

Johnson, who is known for her unorthodox personality and for doing cartwheels at the end of her runway shows, has always done things her own way. After developing a strong following for her girly, frilly dresses and sportswear at department stores, the company embarked on an aggressive push the last few years to open freestanding stores and extend Johnson's label through licensed products.

"They've grown very fast and managed it very well. They've tried to stay on top of a fast horse," said Smith. "They need to build out their team and add systems and processes, and we have experience in doing that."

According to Bacon, the company's operating structure will remain the same. The company employs 310 people throughout its wholesale and retail operation. "We have a great team in place," she said. "We will continue to run the business as usual, leveraging the success of the past 30 years."

With the financial input from Castanea, the company's goal is to add an additional 10 to 12 Betsey Johnson stores a year, to the current roster of 51 stores.

Bacon said her goal is to expand Johnson's brand awareness through additional licensed products and increase its wholesale distribution, while expanding these categories globally. The company currently has 12 licensees in categories ranging from intimate apparel and eyewear to footwear, fragrances and swimwear.

Bacon said the firm has been looking at global expansion in a franchise capacity. Although it has its own stores in the U.S., it wants to partner globally. As for product expansion, the top two priorities are children's wear and bridal, said Bacon.

"Customers understand who Betsey is and love what she does," said Smith. "We will provide a lot of support for Chantal and Betsey and the team, but we're not going to run the business. They're responsible for the team."

Castanea Partners was founded in 2001 to pursue small- to middle-market investment opportunities. The company was founded and capitalized by Smith and Brian Knez, former co-ceo's of publishing company Harcourt General Inc. and the Neiman Marcus Group. They established Castanea following the sale of Harcourt General in 2001.

Smith said his private equity firm has been very interested in making investments in the luxury space. "We're not done. This was our first investment in the new fund," he said.

Castanea is currently investing from its third fund, a $575 million fund that targets companies with enterprise values up to $150 million. One of Castanea's holdings was Hanna Andersson, the children's wear firm, which it bought in December 2004 and completed the sale of to Kellwood Co. last month. It has also previously invested in Kate Spade and Fuze, a beverage company.

Smith said he wasn't worried about the current state of the debt markets. "What's happening in the debt markets is interesting. It will have some effect on values for a period of time. But our time horizons are longer. We're not heavy users of leverage. We're creating value in improving their [Johnson's] operations and performance," said Smith.

The irrepressible Johnson believes her lasting appeal to consumers comes from her ability to relate to them. As she told WWD in an interview in 2005, "I'm a girlfriend to my customer. I never wanted to come into this industry and be on a pedestal," she said, noting she has dressed 13-year-olds as well as their mothers. "I don't know anyone who talks to that girl louder than we do."

A grandmother, Johnson has worked hard to build a company that has proven to have staying power. In the 2005 interview, she said, "We're finally not thought of as kooky crazy. I mean, no one in business for more than 25 years is that kooky crazy."

Meantime, Bacon is sure her new investors won't be hard to spot at Johnson's show on Sept. 11 during New York Fashion Week.

"They'll all be wearing suits," quipped Bacon. "They're great guys. We've looked a long time and we're very happy."

wwd.com - published 23 August 2007