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Phillips-Van Heusen’s acquisition of Tommy Hilfiger will create a company with $3.6 billion in sales and two global designer brands.

(First published in April 2010) The owner of Calvin Klein and Izod plans to spend $3 billion in cash and stock on the privately-held Tommy, a move that will put P-VH in the top five US apparel companies by adding $2 billion to its sales. 

It will also give P-VH better leveraging of its infrastructure, immediate access to markets in Asia and Europe, and expanded presence in key US retail channels.   

More Acquisitions Coming Consolidation and global expansion of the US apparel industry are poised  to resume. Companies in the wholesale apparel sector, particularly those with major brands, have remained on the Mergers and Acquisitions sidelines for the past two years while controlling inventory, cutting expenses, and postponing expansion. As a result, many are sitting on a mother lode of cash. Now that consumer spending is picking up, apparel company values will no doubt increase as well. Who will be next on the acquisition front?

Cash is King The companies with the most cash may be the first to strike out. As shown on the chart at left, Nike, with $20 billion in annual sales, $4.6 billion of which is of apparel, has $2.3 billion in cash, the most of any company in this sector. Other large players with full coffers  include VF Corp, Polo, and Jones Apparel Group. Though owned by a private equity group, Kellwood has estimated annual sales of about $2 billion and might be in play soon. Some medium-size companies, like Guess, Columbia Sportswear and Warnaco, also find themselves in this enviable position of having “too much” cash. Interestingly enough, there are also some small companies with outsized cash holdings, such as True Religion and Iconix. We might expect to see some of these companies seeking acquisitions among the public, private or even the start-up candidates out there. If they don’t, their cash balances might make them attractive targets.  

Acquire or Be Acquired Some small and medium-sized companies will need help growing to their potential.  They have great products and brands, but are just a bit too small to compete against bigger companies with multiple brands and better economies of scale. Firms like Kenneth Cole, Maidenform and UnderArmour might seek to acquire smaller businesses or be ecquired by much bigger ones.

Cash Poor Smaller companies that may be targets for acquisition are those with decent brand equity or fashion positionings but insufficient resources to grow to potential, such as  Perry Ellis and G-III. 

Off The Radar It will be interesting to see what the next year brings for Hanesbrands and Liz Claiborne. Hanes has little cash and $1.7 billion in long-term debt. However, it has a great stable of brands which could benefit greatly from a rejuvenated economy. Liz Claiborne, on the other hand, has seen one-third of its sales evaporate in the past two years. With market capitalization shrinking, and very little cash, time is running out for the owner of Juicy Couture and Kate Spade. 

Of course, all of this is pure conjecture. Some of these companies might use their cash to simply buy back stock. However, a new round of M&A activity might just put some major apparel players back on a path to renewed growth and greatness.

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