Robert D'Loren has been moving fashion trends into the arms of consumers for years - so why haven't you heard of him?
Robert D'Loren has been successfully moving fashion trends into the arms of consumers for years, oftentimes employing a savvy business strategy in lieu of lanky models prancing down the runway.
Aether, which manages a portfolio of MBS, agreed to dole out $30 million to acquire UCC Capital, D'Loren's investment and advisory firm, which is focused not on MBS, but on intellectual property. Aether trades on the Nasdaq under the symbol AETH.
A businessman with a flair for licenses, he's been the deal maker behind the success of Iconix, a unique apparel house tied to labels like Candie's, Badgley Mischka and Bongo, yet D'Loren operates in relative obscurity on Wall Street. But having recently struck a $30 million deal with Aether Holdings, this one concerning the acquisition of his own company, it's simply a matter of time before D'Loren raises his presence while he aims to reshape the way business is done in consumer industries. The question now is where will D'Loren strike first?
Having been chased by several private equity firms and more than a few special purpose acquisition corporations, the fact that UCC Capital was acquired by an MBS player seems downright weird. The company and its board seem comfortable with the unique pairing however, as D'Loren was named Aether's new CEO, and quickly announced plans for change.
"The strategy is to build a portfolio of brands, both in the franchise industry and in the consumer-branded product space," said D'Loren, explaining the new, post-deal Aether, as he rides in a cab in midtown Manhattan.
Since the deal was announced, D'Loren has been meeting with Aether's existing shareholders to explain his new plans. (For one, the company is moving its headquarters to New York City from Baltimore.) He's also been in front of several investment banks and institutional investors, addressing their concerns, like the fact that Aether, currently, doesn't have any analyst coverage. And while Aether recorded $11.7 million in earnings in 2005, it reported a negative net income of negative $4.5 million that year.
"We'll get analyst coverage as soon as we do our first acquisition," D'Loren said resolutely, but declines to mention specifics. "I'm not known for letting the grass grow under my feet in anything I do - that's all I can say." He hinted that the franchise universe seems the most compelling, at the moment, for an acquisition, although any target entity is unlikely to be a publicly traded.
But while market pundits have pushed Aether's stock up about $2.50 since the deal was announced, to a recent $6.50, there's a lot of talk about what D'Loren is capable of accomplishing.
"He's not to be discounted by any means," said Jeremy Hellman, an analyst at Thompson Davis & Co., an investment and research company, who covers Iconix Brand Group. "I'm curious to see how he carries out the back end," Hellman said, explaining the IP licensing model requires strong advertising, marketing and research expertise, the type of talent an MBS company, like Aether, obviously lacks. "That's the hill they have to climb," he said.
Why an MBS company?
The deal puts D'Loren in the driver's seat of a public company for the first time. And he now has stock for currency and an MBS portfolio that can be liquidated, as needed, for acquisition financing. (For now, the MBS portfolio will continue to be actively managed.)
D'Loren's main job now is to land deals where Aether acquires brand licenses. The strategy is similar to what UCC did for Iconix; acquire brand licenses, separate the IP out from inventory risk and stores and strip out the manufacturing costs. The move made Iconix one of the most successful apparel companies of recent vintage.
"The company's projected EBITDA margin for 2006 is 73.7%, which is materially higher than any retailer or clothing manufacture," said Eric Beder who covers Iconix for Brean Murray Carret & Co., a New York-based boutique investment bank.
"It's really a new animal, saying you don't want to fiddle with the manufacturing and the transport, all the grunt work, and focus on a portfolio of brands," noted Thompson Davis's Hellman.
But building the portfolio is one small step - Aether will have to find successful ways of marketing them. Celebrity spokespeople are strong possibility, given UCC's roots in media and entertainment. (UCC's predecessor, CAK Universal Credit Corp., structured IP deals like the infamous Bowie Bonds, among other deals with artists.)
D'Loren, however, confesses that's not all there is to IP - eyes always have to be open to the next new thing. "Industries like nanotechnology could be disruptive to the future of the apparel industry," he said, ticking off a list that includes fabrics completely repellent to water and other liquids, others that heat and cool like thermal suits, to fabrics completely un-wrinkable, as being available in the coming decade. "There's lot of technology out there that will be extremely disruptive, and we have to figure out how disruptive it is."
A new Iconix or new trend?
D'Loren's embrace of IP-the intangible assets of a balance sheet - means understanding his "value add model" requires at least a dash of financial and legal acumen. His model does not involve pursuit of patents, the commonly found IP in technology and pharma companies, but instead chases copyrights and trademarks.
To be sure, IP strategies may not bode well for mass consumption, but that seems to be changing.
Just last month The Wall Street Journal dedicated considerable column space explaining how Iconix, which hired UCC Capital in 2001, used IP licensing to transform itself from Candie's, an extremely troubled shoe brand steeped in debt into Iconix. (Par for the course when playing with IP, the story failed to mention UCC's role.) Today's Iconix, which posted a net income of $15.9 million in 2005, has hired the Olsen twins to model Badgley Mischka, purchased Joe Boxer for $40 million, and recently picked up the brands of Mossimo and Mudd for a total of $119 million.
It also has shed new light on the IP model and, with the new deal at hand, D'Loren's influence on Iconix.
"[UCC] handled all the financing arrangements for Iconix and that gives them, in some respects, a significant head start," in reshaping Aether, Beder said. More publicly traded competitors would be a positive, he adds.
Iconix has moved on to utilize Merrill Lynch for its financing needs, and D'Loren said UCC, now a wholly owned company of parent Aether, "will continue to be strategic to Iconix."
In the meantime, he seems confident that Aether shareholders will enjoy watching earnings move from the 5% return on MBS investing they've become accustomed to toward a 65% to 70% margin on EBITDA, which is what analysts say Iconix generates.
And if that means being deemed a copycat, of sorts, to Iconix, despite the fact his firm created the model, D'Loren seems unbothered. "It's really about investing in industries that have good assets but need to change the way they operate their business," he says.
The business of licensing is very finance-driven, and it isn't about designing products, Brean Murray's Beder noted. "Frankly, I'd be shocked if someone hadn't come along that planned something like Iconix. The business model is too compelling."
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