It’s not often that you associate men’s apparel with private equity investment dollars. What we typically see in the mainstream business media are discussions about equity firms making investments in “sexy” industries like software, green energy, or media. So when I read recently that a high-end men’s apparel firm had obtained funding from an equity firm, it caught my attention. What was really unique about this announcement though was the type of equity firm providing the capital. But let’s start at the beginning as they say.
Earlier this month it was announced that Dallas-based men’s luxury brand J. Hilburn had closed on $5 million in new financing. Bridgescale Partners led the Series C round, with participation from existing shareholder Battery Ventures. The new money will help the company expand interactive technologies and product development, among other efforts.
Despite the fact that this firm is providing funding to a company in an industry that is highly cyclical and driven by fashion trends, what is really unique is that Bridgescale is a Silicon Valley firm that specializes in investing in high tech companies. Per their website:
“Bridgescale invests in high potential technology companies that benefit from the firm’s vast network of Silicon Valley relationships, the team’s decades of investment and operations expertise, and the team’s insatiable desire to add value and make a difference.”
Having seen this description the obvious question is why J. Hilburn? I mean not only is Dallas a long way from the Silicon Valley, I think you would be hard pressed to find too many analysts that would equate men’s apparel with anything high tech. That is what I thought too until I dug a little deeper.
It turns out that J. Hilburn’s business model is rather unique. This is how it is described in Bridgescale’s portfolio:
“J. Hilburn is a luxury men’s brand that delivers custom apparel made from the world’s finest materials at off-the-rack prices. The Company uniquely distributes its product though a combination of eCommerce and multi-level marketing. J. Hilburn is disrupting the entire retail industry by compressing the supply chain and delivering high quality custom fit clothing at mass scale.” (emphasis added)
So it turns out that about five years ago a couple of ex-Wall Street types got the idea that they could create a unique niche in the men’s apparel industry: custom made high-end apparel at discount prices. Today, in addition to suits, J. Hilburn offers handcrafted custom dress shirts and trousers, as well as ready-to-wear items like cashmere sweaters, polos and fine accessories, available online or from a local style advisor. In 2010, J. Hilburn sold 60,000 luxury dress shirts, more than any other custom clothing maker in the world. And it appears that their model is working. According to the press release about the transaction:
“We are on a mission to redefine what men expect from a luxury brand, and our growth validates that we’re on to something,” said Hil Davis, CEO, J. Hilburn. “Our revenue has grown two and a half times year over year and we’ve added 10,000 customers in the last six months. This investment provides additional fuel for our continued growth.” (emphasis added)
Based on their growth, I would say that J. Hilburn is indeed disrupting the retail industry.
A Tailor-made Fit
So it appears that Bridgescale is attracted to J. Hilburn not only because of its phenomenal growth but also because of its sales model, which combines direct selling through a network of personal style consultants and a very sophisticated e-commerce plan. If you go to J. Hilbun’s website, you will see a very nice, easy-to-use online market place.
And ultimately this investment fits nicely into two of the main strategic assumptions that Bridgescale is making about the future. Namely, that “billions of people will be able to make transactions on their mobile device and that mobile phones will overtake PCs as the most common Web access device,” according to their site.
Based on these two assumptions, Bridgescale believes that their investment in J. Hilburn will produce a tremendous return in the future. Given J. Hilburn’s already established web presence, as mobile devices make it even easier for consumers to buy products, J. Hilburn’s recent growth will pale in comparison to the kind of growth it will experience over the next five years. I am also sure that Bridgescale hopes to leverage the business model and technology that J. Hilburn is using and apply it to other industries as well.
Your Search for Buyers
My point in all of this is simple: If you are looking for buyers for your business, know your intangibles that buyers will find attractive and then think “outside the box” when you brainstorm about buyer types. I am sure that lots of folks would have assumed that the “perfect” investor for J. Hilburn would be a firm with extensive experience in retailing or fashion. But the real value, the real intangibles, that ultimately attracted Bridgescale to it are the unique methods and technologies they are using to grow in this very competitive industry.
As you begin to approach buyers for your company, you need to do the same analysis. Ask yourself, what really makes my company unique? What will buyers find most attractive beyond our revenue and earnings? And ultimately, after you have documented your unique assets, you may need to approach several different buyer groups. Each set of buyers may find different features of your business compelling.
But this will only happen if you take the time and make the effort to truly analyze your business. Since most business owners are too closely involved with their companies to objectively do this, I highly recommend that you obtain the services of an experienced M&A advisor to help you. A firm that has sold dozens of companies in a wide variety of industries will have the background and experience you will need to both understand your intangibles AND find buyers willing to pay a premium for them. Because it really takes both to effectively find optimal buyers. Your advisor will not only need to understand what makes you unique but also have the experience to know which buyers will value your intangible assets the highest.
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