Dennis Wilson, the founder of lululemon athletica (NASDAQ: LULU), has agreed to sell half of his 27.7% ownership stake in the yoga apparel company to Advent International for $845 million. The firm will also get two seats on the company Board as part of the deal, which is expected to close in the next 30 to 60 days. All three parties (Advent, Mr. Wilson and the Board) have entered into a support agreement to engage an independent expert to evaluate and make recommendations regarding the Board’s committees, policies and procedures. Mr. Wilson, who reportedly explored his options for a potential proxy fight or hostile takeover with Goldman Sachs, has agreed to certain standstill provisions through the 2016 shareholders meeting.
Advent originally backed lululemon in 2005 and helped it grow into an internationally recognized brand before exiting its initial investment in 2009. The firm’s return has helped buoy the company stock, which dropped more than 50% from last October ($76.57) to mid-June ($37.25). Share price from Thursday’s close to Friday’s open jumped nearly a full dollar ($39.03 to $40.01) upon news of Advent's investment, eventually settling at $40.11 at Friday's close.
As the PitchBook Platform shows, a decent amount of PE investments in apparel & accessories companies have closed in 2014 so far, despite high valuations of consumer businesses and competition from strategic buyers. PE investors' willingness to buy is doubtless aided by current easy access to debt, with Sycamore Partners' buyout of Jones Group a case in point. More than half of all apparel & accessories PE deals in 2014 so far are growth investments or add-ons, expressing the popularity of buy-and-build, as well as the aforementioned high valuations. Advent's acquisition of a lululemon stake also illustrates how every once in a while PE backers are happy to gain a foothold in a well-known, publicly traded brand, either in order to position for eventual acquisition or obtain a piece of high-flying stock. Their enthusiasm for established brands will probably lead to further consolidation in the space, as well as increased competition on the buy side.