Dress-for-Less (Germany) - Dec 2007

unquote
01 December 2007

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Palamon Capital Partners has acquired a majority stake in German retailer Dress-for-Less, with the founders retaining a significant minority stake. This marks Palamon’s ninth investment from its second fund, Palamon European Equity II, LP, which was raised in 2006 and has commitments of €670m. The sales process was run by Altium Capital and was described as attracting great interest from German, European and US private equity houses, as well as German industrial players. The company is described as strongly and growing profitably. Similar investments from private equity houses were recently completed in UK-based M and M Direct (by TA Associates), Italy-based Yoox (Benchmark Capital), and US-based Bluefly (Soros), which highlights that private equity houses see online retail as sustainable and superior. During the process, selected strategic partners were considered, as well as US internet funds and local German players. The investor was attracted to the deal as Palamon had been looking for a suitable retailer operating through the internet as part of its interest in consumer-led growth businesses was attracted by Dress-for-Less as it was steadily developing, profitable and had not gone through cycles during its existence. Even though Palamon did not submit the highest bid, it won the support of the founders and managers based on other criteria, such as its experience with online and retail companies and its experience in aggressively expanding businesses on a European scale. The investor could also offer in-depth understanding of the European market and internationalisation and experience with loyalty schemes such as PAYBACK. Previous experiences will enable Dress-for-Less to analytically work with custom and transaction data to improve service and market penetration. The investor was also attracted by the company’s strong growth success story and described it as perfectly operated and managed with an impressive, committed team. The company was valued not on a sales multiple but on its growth potential as well as its exit potential, as it can be floated, merged or sold on. According to Holger Hengstler, joint managing director of Dress-for-Less, the company is seeking initially to expand across Europe and thereafter to further internationalise the business. Palamon Capital Partner’s engagement enables the company to rework the strategy and to strategically invest in opening new markets and in improving customer service.

Debt

DZ Bank provided the acquisition financing. The debt was all senior financing, with a working capital facility and very moderate leverage used. The terms were described as standard. According to one of the advisers, this shows that such transactions are still possible despite the credit crunch in the mid-market, as long as proven business models with a track record, experienced management teams and trusted equity sponsors are involved.

Company

Dress-for-Less is Europe’s largest online designer fashion outlet. It operates several full- price online shops for fashion brands and in addition sells end of season designer apparel. It offers a range of 4,000 items of men’s, women’s, and children’s apparel and footwear, including more than 250 brands such as Ben Sherman, Calvin Klein, Dolce & Gabbana, Pepe Jeans, O’Neill and Tommy Hilfiger. The company adds 250 new products to its websites every week. The company was founded in 1999 by Mirco Schultis and is jointly managed by Schultis and Holger Hengstler. Based in Floersheim, Dress-for-Less has grown in excess of 30% per year, with 40% growth expected in 2007. The company processes 400,000 orders per year and delivers into 45 countries.

People

Holger Kleingarn led the deal for Palamon Capital Partners and was supported by Stefano Bacci and Dan Mytnik.

Advisers

Company - Altium Capital, Alexander Grünwald (Corporate Finance)Company - Greenfort, Daniel Röder (Legal)Equity - PricewaterhouseCoopers, Phil Heath, Steve Roberts, Wolfgang Breuer (Financial Due Diligence)Equity - Roland Berger Strategy Consultants, Dr Carsten (Other Due Diligence)Equity - Willkie Farr & Gallagher, Stefan Joergens (Lead Corporate Finance)

Sourced from: Deutsche unquote" 94 (Jan 2008)