TowerBrook Capital Partners L.P ,Market Cap(as of 16/5/2013): N/A

True Religion Apparel, Inc, Market Cap(as of 16/5/2013): $814mln

Deal size: $835 mln, all cash

The private equity firm TowerBrook Capital Partners agreed on Friday 10th of May to acquire True Religion Apparel, the designer jeans company based in Southern California. Under the terms of the merger agreement, TowerBrook will acquire all of the outstanding shares of True Religion common stock for $32.00 per share in cash. This represents a premium of roughly 9% to where the stock closed on the Thursday prior to the announcement and approximately 52% to True Religion’s share price on October 9, 2012, the day before the Company announced that it had begun to explore strategic alternatives. The price offered reflects a P/E multiple of 17.8x based on True Religion expected earnings.

The acquisition of True Religion has been in the air since October when the company announced it had hired the investment bank Guggenheim Securities to explore a possible sale. The main reasons behind True Religion’s search for an acquirer can be traced back to its need to renovate and refresh the brand. The company has in fact registered sluggish growth in the past years due to a number of fashion faux-pas and overall lacking consumer confidence. This desire to start afresh led the board of the company to decline to renovate Mr Lubell’s contract as CEO and creative director of the company he had founded with his former wife in 2002.

TowerBrook, the private equity firm that is acquiring the company, has experience in the consumer retail and luxury space and has made control-oriented investments in companies such as Jimmy Choo (which it sold in 2011 to the German fashion company Labelux Group), Odlo, BevMo! and Phase Eight. Towerbrook’s objective is to leverage the company’s high-end brand and well established retail network by joining forces and retail and apparel expertise with True Religion’s management team. The TowerBrook’s partner leading the True Religion deal, Andrew Rolfe, is a former president of Gap International and chief executive of  Prêt-a-Manger.

It has not yet been disclosed how the acquisition will be financed. It is likely that the $835m deal will carry a 20% to 25% equity check, including cash, and debt comprised of first- and second-lien loans.  According with this expectation, and assuming that Towerbrooks will finance 75% of the deal with debt, after the transaction True Religion would have a 7x Net Debt/Ebitda.

The transaction is subject to approval from True Religion’s shareholders, regulatory approvals and other customary closing conditions. The Board of Directors of True Religion unanimously approved the merger agreement and recommends that True Religion shareholders vote in favour of the transaction. The transaction is expected to close in the third quarter of 2013.

Guggenheim Securities, LLC is serving as financial advisor and Greenberg Traurig, LLP is serving as legal advisor to True Religion and the Special Committee of the Board. Akin Gump Strauss Hauer & Feld is legal advisor to the Company. Deutsche Bank, Jefferies and its affiliates, UBS Investment Bank and Macquarie Capital have provided committed financing to TowerBrook in support of the transaction. Deutsche Bank, Jefferies and UBS Investment Bank acted as financial advisors to TowerBrook, and Wachtell, Lipton, Rosen & Katz is serving as legal advisor.


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