Pepe Jeans has already found a buyer

The best-known Spanish jeans manufacturer will become Lebanese soon. The Lebanon fund M1 has won the bid for Pepe Jeans, beating the favorite of the auction, the private equity firm PAI Partners. The bid submitted by M1 has been unreachable for PAI, which has refused to reach the nearly €550 million offered by the Lebanon for the 60% of the capital offered for sale. PAI Partners was considered favorite since by its expertise seemed able to extract more synergies from the company owned by Torreal and Arta Capital, among others. In fact, PAI Partner is finalizing the creation of a €3 billion financial vehicle from where it was supposed to execute the acquisition. However, the commitment of the Lebanese company was very serious and at the end has bid more than anyone.

So Torreal and Arta will leave the capital, while L Capital (a fund created by LVMH and its chairman Bernard Arnault), will remain as shareholder with its 12% currently held. However, this percentage could vary depending on what managers –hold 30% of the capital- will do. CEO Carlos Ortega owns more than 20% of the shares and may sell to avoid potential complications, since it is speculated that M1 could take the business out of Spain or could even use company resources to clean up its loss French chain Faconnable. If managers get out of the capital L Capital could increase its participation in the future. L Capital is well-known in Spain because it was the owner of the Imaginarium stores.

Current owners are the winners of the operation. A few months ago, when they put Pepe Jeans on sale, few anticipated such a high valuation of the company, only understandable by the intense bidding process that have taken place both contenders. In fact, there have been several candidates who have withdrawn from the bidding for the prices, as Permira and KKR. Owners have tripled their investment in less than a decade: Torreal paid €50 million in 2005 by a 40% and Arta paid €85 million for less than 30% in 2011.

A growing company. Much of the valuation gain in this period is explained by the growth of the firm, owner of Hackett and Tommy Hilfiger brands, among others. In this decade it has multiplied its revenue by 4 times to exceed €500 million, even though the severe crisis in the sector in Spain in the last five years. And its Ebitda has grown by about 60%.

Since the company is owned by Torreal, its business model has been based on local and international growth that has clearly been a success. Pepe Jeans has faced the crisis well, overcoming the worst years of the crisis in Spain with good growth figures internationally. Actually, only 24% of the revenues come currently from Spain. It already has 6,000 sales points worldwide.

Disclosure: The author is not responsible for the views expressed in the article. The text has been written freely expressing ideas, without receiving any compensation. The author has no business relationship with any of the companies whose shares are listed in this article.