Apax Partners

Designer Calvin Klein founded the label named after him in 1968 and continued to establish it as one of the most popular lifestyle brands in the world.  The company’s portfolio includes the brands cK and cK Jeans, clothing accessories, shoes, glasses, watches as well as perfumes are also sold under the Calvin Klein label.

Philips-Van Heusen is a US-based textile manufacturer that owns the licenses for internationally-recognized names, including Calvin Klein, Izod, DKNY, Kenneth Cole, Bass and Geoffrey Beene.  PVH’s business is divided into three groups:

• Calvin Klein - Calvin Klein is one of the world’s leading lifestyle, design and marketing companies. With headquarters in New York and worldwide operations in Milan, Paris, Hong Kong and Tokyo, Calvin Klein designs and markets a range of designer products that are manufactured and marketed through an extensive global network of licensees and business partners.

• Dress shirts - The company is a leading provider of men’s dress shirts to US department stores, where it owns a 40% share in the men’s dress shirt market.

• Sportswear - The Sportswear Group works hard to maintain the distinctiveness and originality of each of its sportswear brands, while meeting the consumer’s range of sportswear needs, whether dressy, casual or recreational. The Sportswear Group works together across its core competencies - licensing, advertising and marketing, design, operations and finance, sourcing and sales/planning.

With PVH’s experience in the integration and further development of brands, as well as its established infrastructure, further significant growth in sales and profits seemed possible through the acquisition of another strong brand name.  For some time PVH and Apax Partners together had looked for a suitable addition to PVH’s portfolio of brands.

After examining several acquisition options, PVH and Apax Partners chose Calvin Klein because its lifestyle brand is well positioned all over the world and it had growth potential.

The transaction

PVH was unable to finance the purchase on its own. While maintaining confidentiality, the challenge was to find a financing structure that did not require a capital increase through the stock market and at the same time did not burden PVH with excessive loans.

The transaction structure also had to meet three key requirements: 
1. It had to be transparent enough to meet the requirements of a company listed on the stock market.
2. The complementary strengths of both companies had to be merged to achieve maximum synergies.
3. The financing had to provide for an exit route for Apax Partners in order to realize its investment after several years of successful collaboration.

Apax Partners and PVH decided on a structure that allowed PVH to consummate the acquisition with only minor inclusion of bank loans.  Funds advised by Apax Partners invested $375 million into the deal - $250 million as an equity investment in PVH covertible preferred stock, as well as a $125 million, two-year secured note.  The preferred stock carried an 8% dividend payable in kind or in cash at the company’s option and a $14 conversion price into PVH common stock.

This convertible financing enabled PVH despite being listed on the stock exchange to utilize the investible funds provided by the Apax Fund for further growth.

The transaction was comprised of three steps:
1. Funds advised by Apax Partners provided Phillips-Van Heusen with a total of $375 million;
2. With this capital plus additional internal funding PVH acquired 100% of shares in Calvin Klein Inc., the previous owners, for a purchase price of $430 million.
3. Mr. Klein and his partner reinvested a portion of the sales proceeds into the new PVH enterprise.

The acquisition was financed through a convertible bond and demonstrates how enterprises can successfully consummate new acquisitions with the aid of alternative financing instruments even in a time of weakened capital markets.  In addition, this kind of financing guarantees absolute discretion prior to the transaction, which is of critical importance especially in times of comparatively low evaluations by candidates for the takeover.

The Calvin Klein transaction is an example of Apax Partners’ strategy to help finance future growth for enterprises with strong management teams.  Phillips-Van Heusen has excellent management.  Calvin Klein Inc. is a global brand whose image is recognized the world over.  This powerful combination represents the best foundation for consistent growth in the United States, in Europe and in Asia.

The new company

The strengths of both companies complement each other in the "new" PVH.  PVH now owns an additional, world renowned, positively engaged brand capable of being expanded.  Within PVH this brand cannot only be handled with marked efficiency via the existing infrastructure and distribution structure, but also is capable of being expanded considerably.  The management, for example, shortly after the transaction introduced a Calvin Klein Sportswear Collection for Men and Women in addition to the already existing line of Calvin Klein shirts and started to launch their own Calvin Klein Factory Outlets.

In addition, Phillips-Van Heusen profits from the potential Calvin Klein Inc. brings to the table. Calvin Klein possesses an enormous know-how in the area of licensing which in turn can be applied to the expansion of the already existing PVH brands. Apax Partners continues to advise PVH on its growth strategy.  Apax Partners has three seats on the company’s supervisory board.

How the companies benefit

Phillips-Van Heusen ($14 Billion in Sales)  Calvin Klein ($1.7 Billion in External Sales)

- Leading position in shirts and sportswear(Contact with the trade) No sportswear collection
- Leading factory outlet entrepreneur Outlets offer potential for improvement and growth
- Efficient processes Partially inefficient processes
- Excellent infrastructure High overhead
- Little internationalization Internationally known designerlifestyle brand
- Licensing of some brands in its beginning stages Great international licensing know-how