Q&A On Monomoy’s Catalog Roll-Up

Update: This story has been updated to correct the size of Monomoy’s latest fund.

Today Monomoy Capital Partners announced it acquired Casual Living USA, a Tampa, Fla.-based women’s apparel retailer, from its family owners. I spoke with Daniel Collin, Partner with Monomoy, about the deal, which is the first add-on to the firm’s catalog apparel platform, Boston Apparel Group.

peHUB: You started the platform in July 2008, when you acquired Chadwicks and metrostyle from Redcats Group to form Boston Apparel Group for $25 million. Is this your first add-on to the platform?

Daniel Collin: Yes.

How many more acquisitions would you like to do on the platform?

We’re opportunistic. The initial investment has been very successful for us. We took it from a money-losing company to being profitable in 2009. We have capacity to be three times the size of our current business with our distribution, so we’re actively looking for add-on acquisitions of direct retailers to plug into our cost structure.

Does Casual Living USA need operational improvement, and other than combining its operations with your platform, how do you plan to do that?

The strategy is to bring Casual Living into our platform is to take advantage of favorable cost structure.

Is this cost structure a matter of scale?

We have an efficient distribution center, and we have an appropriate level of corporate overhead for the business. We have the ability to source products at attractive pricing and our efficiencies within our distribution center are second to none. It’s a result of the 18 months of operational focus turnaround program we implemented in July.

So Casual Living and the rest of the Boston Apparel platform has no bricks and mortar presence. Why do you view the catalog apparel business as an attractive one?

Our brands all provide value price points of clothing for women in a core demographic, 30-65 years of age. We believe that through optimizing the cost structure we can generate increased profits even without substantial growth in our core markets. That’s been the case with most of our investments. Once you fix the cost structure, companies are able to grow.

And the catalog industry in general?

There are going to be winners and losers. There are substantial headwinds in catalogue marketing, like paper costs and postage costs, but given our cost structure we believe we can grow profitably.

How did the firm source this deal?

The sell side was represented by investment banking firm Tully & Holland. They contacted us about the deal.

Was it an auction process?

I guess so. We’ve had a long period of exclusivity to get the deal done. The seller was looking for someone who could get these assets carved out of the company with a high certainty of close.

So the family owners were selling this as a carve-out?

Yes, the family had some other businesses that they are going to continue to run. They decided being in apparel was not for them.

Did they exit their entire stake?

They sold their entire stake. We purchased 100% of the company. They won’t be staying on as managers.

What would Monomoy’s exit strategy be?

One is a PE firm that’s focused on selling up and growing our capacity. They may want to buy us as a platform. There’s always the opportunity to raise capital in public and private markets as well. And there are some strategics out there who are looking for additional channels to a company that’s just bricks and mortar. Lastly a few of the larger catalogue and internet retailers have been acquisitive.

Did Monomoy pay for this with capital from its first fund, and how deployed is that fund?

It was through our first fund which is 60% deployed.

The firm recently filed with the SEC that it’s in the market with a $250 million fund. Why did you lower the target from your first fund, a $280 million vehicle, which had $400 million in interest? Correction: The firm is in the market raising $350 million, which is an increase over its prior $280 million vehicle, according to an SEC filing.

Collin declined to comment on the firm’s fundraising efforts.

Previously:

Monomoy Capital Back In Fundraising Mode

Monomoy’s Apparel Deal a Contrarian?

Monomoy Buys Missy Group