Coach to Pay Up to $574 Million for Stuart Weitzman from Sycamore Partners

In What's New, Industry News by Jeff Prine

Picture-Perfect Pals: Stuart and Gisele Bündchen reunite for the ‪SS15‬ ad campaign, as photographed by Mario Testino

Picture-Perfect Pals: Stuart and Gisele Bündchen reunite for the ‪SS15‬ ad campaign, as photographed by Mario Testino

New York—In its first acquisition, Coach Inc. today revealed it has signed a definitive agreement with private equity firm Sycamore Partners to acquire Stuart Weitzman Holdings LLC, a designer and manufacturer of women’s luxury footwear.

Coach will pay Sycamore Partners $530 million in cash, in addition to up to $44 million in contingent payments if it hits certain revenue targets over the next three years.

The addition of Stuart Weitzman is a complement to Coach’s position in handbags, the company said, “while immediately adding to the company’s earnings as it continues to make meaningful progress against its brand transformation announced earlier this year.”

Sycamore inherited Stuart Weitzman and several other brands when it took Jones Group Inc. private last year. At the time, Sycamore paid $1.2 billion for a collection of brands that included Jones New York, Easy Spirit, Nine West and Stuart Weitzman.

Victor Luis, Coach’s ceo, said, “Stuart Weitzman is a leading American luxury designer footwear brand with a solid growth trajectory and further significant domestic and international development potential. Importantly, the size, scope and vibrancy of the Stuart Weitzman brand, along with the continuity of its management team, allows for a seamless transition to Coach ownership, as we continue to focus on Coach’s brand transformation.”

Luis indicated that Coach plans to advance the Stuart Weitzman brand globally using its existing infrastructure.

“In addition, we look forward to benefiting from the Stuart Weitzman team’s expertise in footwear development where they’re proven leaders in fashion and fit,” Luis said. “Our strong balance sheet provides the flexibility to take advantage of this opportunity while re-investing in our core business and continuing to maintain our dividend at current levels.”

Analysts Balk

The Wall Street Journal, which first reported a pending sale on Monday, said that Stuart Weitzman actually had several interested parties including other shoe makers and private-equity firms, such as Permira and Bain Capital LLC.

The acquisition didn’t receive universal praise. Some analysts called Coach’s first acquisition “unnecessary and distracting, saying the deal could shift its focus from fixing its core handbags business. “

“Any distraction will complicate matters during a critical turnaround phase,” Stifel Nicolaus analysts wrote in a note.

Coach is “paying a premium for a distraction,” shelling out nearly twice Stuart Weitzman Holdings’ revenue over the past 12 months, Topeka Capital Markets analysts wrote in a note.

Stuart Weitzman Holdings had revenue of about $300 million in the year ended Sept. 30.

Stuart Weitzman, creative director/executive chairman of Stuart Weitzman Holdings LLC, said of the deal:  “What an exciting beginning to the new year. People Magazine has named our ‘Highland’ the Trendsetter Boot of 2014, Life & Style Weekly has recognized our ‘Nudist’ as the ‘It Shoe’ and the Celebrity Red Carpet Shoe of 2014. And Coach has selected us as its first acquisition. In Coach, we have found a strategic partner that respects our culture, and offers the scale, resources, and global business acumen to enable us to realize our full potential.”

Stuart Weitzman will continue as creative director/executive chairman of Stuart Weitzman Holdings, and together with Wayne Kulkin, ceo, and their management team.

The financial adviser to Coach was Perella Weinberg Partners. Goldman, Sachs & Co. and Citigroup Global Markets, Inc. acted as financial advisers to Sycamore Partners.

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