Last sprint for Pepe Jeans: PAI Partners and M1 join the race

Tuesday, 13 January 2015

Pepe Jeans could change hands in late January. The sale of the fashion group reaches its final stage, with the PAI Partners and M1 funds as favorites to take control of the group, still property of Torreal, Arta Capital and L Capital.

After more than six months of bidding, discussions and proposals, the French venture capital fund PAI Partners and Lebanese M1 Group have become the finalists in the race for Pepe Jeans London.

The sale of Pepe Jeans would value the group at 800 million euros

Market sources said the parties would be thinking of 800 million euros as the total value of the owning company of Pepe Jeans London and Hackett brands.

The same sources emphasize that, by closing the transaction around this figure, the group would be valued at more than ten times its earnings before taxes (EBITDA) forecast for 2015 (80 million euros).

It is noteworthy that Pepe Jeans turnover came in at more than 500 million euros in the year ended in March 2014. The gross operating profit was about 50 million euros.

Both bidders are defining these days their binding offers, which were delivered last December, and will be in late January when the entities that control the company (Torreal, Arta Capital and L Capital) select one of the proposals to close and sign the purchase agreement.

Since the company appointed Morgan Stanley to find new owners, there have been several suitors. Besides PAI and M1, in the bid for Pepe Jeans have also participated Permira, PAI partner in Cortefiel, KKR, Alhokair (owner of Blanco Suit) and two investment funds from Singapore and Qatar.

Torreal Group, the investment vehicle of Spanish businessman Juan Abelló, entered the capital of Pepe Jeans in 2005 with the purchase of 43 percent of the company for 50 million euros. In 2010 Arta Capital and L Capital - the investment vehicle of LVMH - bought 16.4 and 11.5 percent of the textile group, by 50 and 35 million euros, respectively. These acquisitions accounted valued the textile company at 304 million euros, reports 'Expansion'.

The complexity of bids delay the closing of the transaction

As confirmed by sources close to the operation, the process has been slightly delayed due to the complexity of the proposals made by PAI and M1. The latter would not attend the auction alone, but hand in hand with L Capital, which already owns a significant stake in the company. This offer includes a complex asset swap.

Within the industry, it is PAI Partners which comes as the favourite, given his knowledge of the fashion industry in Spain, where they own a third of Cortefiel.

Capital for sale corresponds to 58.9 percent of Pepe Jeans London that Torreal (31 percent), Arta Capital, manager of Corporación Financiera Alba (16.4 percent) and L Capital spread (11.5 percent) currently own. The remaining 11.1 percent is held by minority shareholders.