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HanesBrands Boosts Portfolio With $800M Purchase

HanesBrands is about to make its sixth acquisition in three years.

Hanes, based in Winston-Salem, North Carolina, has agreed to acquire Pacific Brands Limited, an Australian underwear and intimate apparel company, in an all-cash transaction valued at $800 million.

The acquisition, announced Thursday, would add Australia and New Zealand to the list of countries where Hanes holds the number one or two market share position for underwear, intimate apparel or hosiery, including the United States, Canada, Mexico, Brazil, France, Germany, Italy, Spain and South Africa.

Pacific’s portfolio currently comprises three business units: underwear; Sheridan, which markets luxury linens, towels, bedding accessories, loungewear and babywear; and Tontine and Dunlop pillows and flooring. The Melbourne-based company sells primarily in Australia with some distribution in New Zealand, the United Kingdom and Asia.

According to a press release, Pacific has undergone significant restructuring over the past two years to streamline its portfolio to focus on the core underwear and Sheridan businesses. Hanes said it intends to divest Tontine and Dunlop, which together account for only 12 percent of sales and operating profit, excluding corporate overhead allocation.

Hanes has projected that, under its ownership, Pacific would have calendar 2016 net sales in its core businesses of approximately 800 million Australian dollars (or $600 million) and adjusted operating profit of 75 million Australian dollars ($56 million). The company said it expects the deal to deliver full benefits within three years, attaining adjusted operating profit of about $100 million and contributing $0.25 to Hanes’ adjusted earnings per share.

Based on fiscal 2016 expectations, the core businesses have a combined two-year compound annual sales growth rate of around 8 percent.

“Pacific Brands is a natural addition to the HanesBrands portfolio with its strong market-leading brands that will be complemented by our global supply chain,” Hanes Chairman and Chief Executive Officer Richard Noll stated. “In the span of 10 years, we have transformed the company through acquisitions and our ‘innovate-to-elevate’ initiatives. We have tripled operating profits and expanded from a $4 billion company concentrated in the United States to a $7 billion global underwear and activewear powerhouse spanning the Americas, Europe and Asia-Pacific. This foundation will serve as a catalyst for even further growth and value creation for the foreseeable future.”

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Pacific’s underwear business accounts for three-quarters of sales and includes underwear, bras, socks, hosiery, babywear and outerwear. Its biggest brand is the century-old Bonds, which reportedly holds Australia’s top spot for men’s, women’s and kids’ underwear, babywear and socks, as well as the number three position in bras. In addition, the Berlei brand of premium bras—sold in department stores—is number two in overall bra market share and number one in sports bras.

Notably, Bonds sales have increased 40 percent since 2013 and are up 39 percent in the first half of this fiscal, driven by store openings as well as a 22 percent growth in comparable store sales.

Hanes said it expects the acquisition to result in significant savings through the use of its large-scale, low-cost global supply chain. Pacific sources the significant majority of its underwear and intimate apparel production from third-party manufacturers, while Hanes relies primarily on company-owned manufacturing.

“Pacific Brands, led by a top-notch management and marketing team, will make a significant addition to our worldwide portfolio of leading brands,” Hanes Chief Operating Officer Gerald Evans said. “We believe we can make meaningful contributions to the continued execution of the Pacific Brands growth strategy and support it with our world-class low-cost supply chain. This will also add geographic scale that will benefit our existing Champion Australia business.”

The acquisition, subject to Pacific Brands shareholder approval and other customary conditions, is expected to close in the third quarter of 2016.