Could Ascena Retail Group Inc. be looking at a way to monetize other assets as it also looks to its shared services platform as a new revenue base?
Ascena on Monday said it signed a definitive agreement to sell a majority stake in Maurices Inc., the company’s specialty chain in the “value fashion” segment of the market. The sale was to an affiliate of private equity firm OpCapita in a transaction valued at $300 million. The retailer said the deal, subject to customary closing conditions, is expected to be completed this summer.
OpCapita is a London-based private equity firm. It said last week that it sold value apparel retailer NKD to TDR Capital, after turning around what was a loss-making enterprise. The transaction for Maurices represents OpCapita’s first investment in the U.S.
According to OpCapita, the existing management team will stay in place, and George Goldfarb will continue as president and chief executive officer. Jeff Kirwan, former president and ceo of the Gap brand will join Maurices as executive chairman.
“We believe there is a real opportunity to increase the profitability of Maurices through hands-on operational improvement,” Henry Jackson, CEO of OpCapita, said. “We firmly believe that our consistent focus on operational discipline is a key differentiator embedded in the heart of our organization, and one we look forward to implementing at Maurices.”
The deal is expected to net Ascena $200 million after expenses, with net proceeds used in part to pay down Ascena’s existing term loan balance. And Ascena will still retain a minority stake in the business. The company said the structure of the deal allows “Ascena to participate in potential upside by partnering with a strong operator who has a history of success in apparel retailing.”
But what’s more interesting is Ascena’s continued support via a managed services agreement that includes IT, supply chain, sourcing and certain back office functions. The services agreement is based on the shared business services platform Ascena developed back in 2016 when it initiated its Change for Growth Plan, which the company said Monday was on tract to deliver a run-rate cost savings of $300 million by July 2019.
Ascena emphasized that the managed services agreement furthers the development of its platform services business. David Jaffe, Ascena’s chairman and chief executive officer, noted that the managed services arrangement will serve as a template for offering third-party platform services for others.
As for other brands under Ascena’s umbrella, those are still under review as the company continues its evaluation of assets and operations.
“The sale of a majority interest in Maurices underscores the value that exists in our portfolio brands. The review and evaluation process we are undertaking, with the help of outside advisors, is designed to recognize this value on behalf of Ascena shareholders,” Jaffe said.
Whether Ascena can structure similar deals for some of its other brands that would also use the shared services platform has yet to be determined.
When Ascena reported earnings results for the second quarter earlier this month, Jaffe said he wasn’t happy with the results, which included a wider loss and a profit shortfall for the third quarter, compared with prior forecasts. At the time, Jaffe said the company was accelerating plans to address profitability issues, and that it would “continue to explore opportunities within our portfolio that can allow us to focus capital and management attention on those brands that we believe can deliver sustained growth and profitability by maintaining a differentiated position in the marketplace.”
Noting the structural changes that have impacted a number of retailers, including Ascena, Jaffe said, “We have also identified, and developed plans for, an additional $150 million in savings, which will drive operating margin rate expansion. These efforts are expected to deliver a leaner operating model and enhanced competitive capabilities, but we must do more. To create value for our shareholders, we are planning deliberate actions to generate more profitable growth from those brands and operations in our portfolio that we believe have greater long term potential.”