Steelpoint Places Equity Bet On Apparel Business

Target: prAna

Price: $36.5 million

Sponsor: Steelpoint Capital Partners

Seller: Liz Clairborne Inc.

Financial Adviser: Seller: Centerview Partners LLC

Legal Adviser: Sponsor: Cooley Godward Kronish LLP; Seller: Kramer, Levin, Naftalis & Frankel LLP

Steelpoint Capital Partners dug deep into its pockets earlier this month to acquire prAna, the Vista, Calif.-based maker of yoga and outdoor apparel that had been a division within Liz Claiborne Inc.

The New York-based shop took control of the company with a straight equity investment of $36.5 million. That’s a big outlay for Steelpoint, an evergreen fund run by hedge fund manager Moore Capital Management, as well as an unusual deal for the firm. The firm typically writes checks of $5 million to $30 million to make non-control, late-stage venture and growth equity investments. It also tends to avoid apparel, although another one of its portfolio companies, artistic toy store Kidrobot, sells “Da Bomb Track Jacket” and other apparel.

The firm’s investment team has been working on the deal since the fall. Scott Tierney, managing director, said that prAna’s brand recognition, customer loyalty and solid management team—which invested alongside Steelpoint Capital—convinced the firm the investment was a good one. “This is one of the most authentic brands that I know of” in the outdoor lifestyle apparel market, Tierney said.

Moore Capital plans to help the company expand nationally and in Canada, Europe and Asia. It also plans on expanding prAna’s recently initiated stand-alone store concept. The company opened a store in San Jose, Calif., in the fall, and at press time it had planned to open a flagship store in Boulder, Colo., on Feb. 13. Tierney and his team are unsure at this point how many stores they will open. To date most of prAna’s sales have come from 1,600 retailers, such as REI.

Steelpoint Capital did not use any debt to finance the deal, although it does plan to issue debt to help fund prAna’s expansion. It may also eventually issue debt to recoup some of its equity investment, though that is not a priority, Tierney said. The company’s cash flow, along with debt, will also help fund the expansion.

Steelpoint Capital is modeling the expansion in part on the strategy of Lululemon Athetica Inc., a Vancouver, B.C.-based company that makes exercise apparel. That company, backed by Advent International and Highland Capital Partners, went public last year in one of the more successful buyout-backed IPOs of 2007; the stock has risen by nearly 25 percent since the company listed in July. Advent International and Highland Capital maintain a combined 41 percent stake in Lululemon valued at roughly $971 million, according to Thomson Financial, publisher of Buyouts.—B.V.