Monomoy’s Apparel Deal a Contrarian?

Monomoy Capital Partners bought a catalogue retailer this week. A curious move, I thought, considering the mail order business has been made nearly obsolete by e-commerce, and retail itself isn’t weathering its hottest days. Just a few months ago, Sun Capital’s catalogue business, Lillian Vernon, went bankrupt, citing rises in paper costs as one of many headwinds.

So what was the appeal for Monomoy—call it a contrarian play?

I spoke with Daniel Collin, a partner at the New York-based turnaround firm, to find out what was attractive about Women’s Apparel Group (their new name for the company, which did business as Missy Group under parent company Redcats Group).

At the time of the conversation, I wasn’t aware that the firm had only paid $25 million for the company. I read that detail over at The Deal today.

Considering the business has around $300 million in sales, even if it was hemorrhaging money, that’s not a bad price. Right now more than half of the company’s business is online. Collin said that after it negotiates for more flexible manufacturing contracts and integrates a “right-sized” back office administration, Monomoy would work to grow its e-commerce business, ultimately using the catalogue business as a marketing tool to drive traffic to the Web site.

The number one online retailer, Amazon.com, trades near a 56x price-to-equity ratio. There are plenty of survivors and thrivers in the online sales space: PC Mall, Overstock.com, Alloy Inc, etc, so if Monomoy can make that transition, I’d call it a viable business.

The thing I was confused about was Monomoy’s characterization of the company. The firm has mentioned its portfolio company Barjan, as a comparable investment. Barjan distributes non-food products to truck stop retail outlets (I guess that means books on tape and those dream catcher things). Perhaps, since Barjan’s products include some apparel, they have a bit in common, but aside from the distribution element of both businesses, I still say Women’s Apparel Group is a new kind of investment for the firm.

That doesn’t make it bad—in fact I think it’s got a lot more potential than dream catchers. After fixing the “low hanging fruit,” as the PE pros like to say, Monomoy can focus on competing in a growing category.