Men's apparel maker Hampshire Group has entered into a definitive agreement to acquire garment manufacturer Rio Garment for up to $23m.

Hampshire said that the deal presented an opportunity to grow Hampshire’s core business into the specialty store channel. It also said there was potential to expand Rio’s business into the department and chain store channels.

“This acquisition marks one of the most exciting and important steps in the new strategic direction of our company,” said Heath Golden, CEO of Hampshire Group.

“Rio’s innovative model is premised upon providing value-added services and process integration far beyond the traditional retailer-supplier relationship. The desire of Rio’s owners, including Paul Buxbaum, CEO of Buxbaum Group, to become meaningful shareholders of Hampshire, is testament to their belief that Rio’s model can be grown and leveraged by way of Hampshire’s financial strength, core competencies and retailer and supplier relationships.”

Founded in 2006, Rio is a Honduras-based apparel manufacturer, designing, sourcing and producing knit tops for retailers and distributors in the US.

The investment includes $6.8m in cash and $10.5m in Hampshire stock, after the repayment in cash at closing of certain liabilities totaling approximately $5.7m, under the terms and subject to the conditions of the agreement.

Hampshire expects the transaction to close, subject to satisfaction of certain closing conditions, in the third quarter of 2011.

The company posted 2010 net sales of $57m and manufactures knit tops primarily for specialty retailers, including Aeropostale, which is its largest customer.