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Victoria’s Secret Supplier’s New Joint Venture Drives Vertical Integration

MAS Holdings Ltd.’s latest acquisition, BAM Knitting, is giving wings to the Sri Lankan garment giant’s plan for a more vertical integration.

MAS, with its $2.4 billion in annual turnover, has been clear about its vision for growth, and industry insiders note this move aligns well as it adds strength to its printing, dyeing and finishing for cotton fabrics. The deal will create a new entity, Texo Private Ltd. MAS Holdings will take the majority stake in the new venture, with BAM Knitting as its joint venture partner.

“This enables MAS to increase the verticality of our Sri Lankan operations and mitigates the increasing volatility of global supply chains and costs of logistics while increasing the overall value added. It also highlights our continued confidence in Sri Lanka as a sustainable and competitive destination for apparel manufacturing, despite the ongoing economic challenges,” MAS Holdings CEO Suren Fernando said.

As Sri Lanka has been negotiating bankruptcy aid, food and power shortages, and $51 billion in debt, the plummeting local rupee is forcing new ways of thinking. The tense political crisis that led to the resignation of former president Rajapaksa Gotabaya have changed direction after former prime minister Ranil Wickremesinghe was sworn in on July 21. While talks with the International Monetary Fund for loans are underway, the apparel and export sectors have been Sri Lanka’s priority.

The nation’s $5.4 billion garment and textile export industry is being looked at as a kind of salve for the country’s economic woes.

Renuka M. Weerakone, director-general of Sri Lanka’s Board of Investment, told Sourcing Journal that the nation’s garment sector is shifting toward more backward vertical integration, with “lucrative opportunities in raw material production.”

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“It is a trend that took greater shape during Covid and is becoming more of a focus at this time,” she said, citing the Eravur fabric processing zone that broke ground two weeks ago with $35 million in committed funding from a new investor from India.

“Initiatives of this nature are critical in ensuring the country’s long-term economic resilience and stability by helping to reduce its imports and strengthen exports,” Fernando said. “MAS takes pride in providing leadership to these efforts as Sri Lanka’s largest exporter.”

Shakthi Ranatunga, group chief operating officer at MAS Holdings, noted that the combined entity post acquisition will be immediately accretive.

“Thulhiriya, [where BAM is located] in the North Western province of Sri Lanka, is a wet processing zone and has most of our manufacturing mills, and it was quite an opportunity for us,” Ranatunga said. “Today, MAS has a worldwide footprint, from Vietnam, Indonesia, Bangladesh, Sri Lanka, India, Jordan, Dominican Republic and Haiti, so in terms of apparel manufacturing we have a presence across the globe. But 75 percent of our manufacturing is still based out of Sri Lanka, and this is made up of both synthetic and cotton. Over the years we also had a big cotton briefs business that we grew with Victoria’s Secret.”

Acquisitions and partnerships are clearly a way forward for the industry.

“It’s definitely a demand from the industry and there is work being done by the government to see how we can facilitate more verticality on the island,” Ranatunga said. “We will invest in the experience and knowledge of our partners and that will help us scale up faster. Working with partners who are already established in their field is a better proposition.”

BAM Knitting CEO Amandha Fernando said that the company’s early focus on kids’ apparel manufacturing had already led to a strong focus on sustainability, an essential ingredient in the printing, dyeing and finishing arena. He is clear that the way ahead would be through combining this ethos with product development expertise and the strong people-centric ethos that the collaboration brings.

“We decided as a business to focus on the vertical integration. Being a kid’s wear business, sustainability played a huge role, whether it was in terms of harmful chemicals, from a green perspective, etc. We realized that it aligned nicely with MAS, hence the joint venture,” he said.

“Significant synergies are expected from the acquisition, including production capacity enhancements and collaborations on new product developments,” he added.