On the (high) heels of the July 25 announcement that New York-based Michael Kors Holdings will acquire luxury shoe brand Jimmy Choo Plc for $1.2 billion, which followed other recent U.S. fashion and apparel deals, media interest in industry acquisitions and potential consolidations of brands is heating up. Indeed, the Michael Kors CEO made headlines by telling CNBC that he hoped the company was not done, and hoped to eventually achieve the status of a luxury group. The recent headline-grabbing announcement is just the latest in a string of fashion acquisitions across the market spectrum. Luisa Zargani, “Global M&A Activity Up 30% in 2016,” Women’s Wear Daily, March 10, 2017. Whether driven by challenging macro-economic conditions and uncertain financial markets, the rise of e-commerce and m-commerce, the desire to re-brand, and/or other strategic aims of expansion, it appears we are in for a period of persistent, significant acquisition and investment in the industry—and attorneys should be prepared for the influx.
As with any deal, buyers and sellers/targets (especially those planning to shop on their own for maximum returns) will engage attorneys and bankers to assist them throughout the high stakes and complex M&A process. The buyer’s attorneys and agents engage in a diligence to assess the target’s assets, current and potential liabilities, and anything else that bears significantly on the value and strategic fit of the deal. Although deals differ in emphasis, labor and employment (L&E) issues tend to receive less attention than big-ticket items like financial statements, material contracts, intellectual property, etc. However, ignoring the impact of L&E issues comes with meaningful risks, not only for buyers, but also for prospective targets thinking about “cleaning up” their profile prior to seeking acquisition partners. Buyers in fashion and apparel should be especially mindful of the following issues during the diligence process (and for sellers, in advance of that process, so as to not raise red or yellow flags for buyers, their counsel, bankers and transaction insurers).1
