Gildan announced it had entered into an asset purchase agreement with American Apparel

Gildan announced it had entered into an asset purchase agreement with American Apparel

Canada's Gildan Activewear is hoping to acquire the American Apparel brand in a deal worth around US$66m, which was struck after the troubled US retailer today (14 November) filed for Chapter 11 bankruptcy protection for the second time in just over a year.

Gildan says it has entered into an asset purchase agreement (APA) to acquire the worldwide intellectual property rights related to the American Apparel brand and certain assets from American Apparel LLC. This, it says, would constitute the initial bid should the Bankruptcy Court require American Apparel to hold an auction for its assets and business. 

Gildan plans to integrate the brand within its printwear business, and will also separately purchase inventory from American Apparel to ensure a seamless supply of goods in the printwear channel – but will not be purchasing any retail store assets.

If successful, the transaction would close during the first quarter of 2017.

The American Apparel brand is "a highly recognised brand" among consumers and within the North American printwear channel, the Canadian firm says, and the purchase would represent "a strong complementary addition" to its portfolio, which already includes the Anvil and Comfort Colors brands. Gildan Activewear makes branded clothing, including undecorated blank activewear such as T-shirts, sport shirts and fleeces, which are decorated by screen printing companies with designs and logos.

The acquisition would create opportunities for revenue growth by leveraging Gildan's distribution network in North American and international printwear markets to increase the brand's penetration in the fast-growing fashion basics segment. The company says it will also evaluate potential wholesale opportunities for leveraging the American Apparel brand within its branded apparel business.

Teen fashion retailer American Apparel filed for Chapter 11 bankruptcy protection in October last year, crippled by US$311m of debt, falling sales, and a number of corporate lawsuits. It emerged from Chapter 11 earlier this year after implementing a reorganisation plan – but months later the company said it would have to cut jobs as part of plans to redesign its production processes and potentially outsource the manufacture of more complicated garments.

In August, it declined to comment on "rumour and speculation" that its days as a Los-Angeles-based manufacturer were over, and reports it was exploring a possible sale of the business. 

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If Gildan is not successful in its bid, it will be entitled to a break-up fee and expense reimbursements.

Neil Saunders, CEO of Conlumino, believes the emergence of Gildan as a buyer for American Apparel is a sensible route forward for the company.

"In our view despite its many challenges, there is still some value in the American Apparel brand. However, that value is simply not sufficient to support the existing store network and its associated costs, hence Gildan's decision not to buy out any of the store based leases or assets. Using its own network Gildan will be able to distribute the brand in a cost effective and profitable way."