FINANCIAL REVIEW

November 10, 2020 : 3.35pm

by Sue Mitchell – Senior Reporter

Womenswear retailer PAS Group is back on the acquisition trail, searching for new retail brands and licences after being acquired by entrepreneur Larry Kestelman’s private equity arm, Queens Lane Capital.

PAS Group’s long-serving chief executive, Eric Morris, said the group, itself the product of a series of acquisitions, was looking to buy distressed retailers and brands in need of new capital to add its retail and wholesale portfolio, which includes Review, Black Pepper, Yarra Trail and the Designworks business.

“We’ll be an acquirer of note, as the PAS Group has been for many years,” Mr Morris told The Australian Financial Review.

“There are not many people who buy apparel businesses, there are a handful of acquirers, and we happen to have been one of them for 15 years,” he said.

“There’s no doubt there will be lot of opportunities in this space for bolt-on acquisitions … particularly in the first quarter of next year.”

It is understood PAS Group was looking at Naomi Milgrom’s Sussan Group, which was put up for sale two years ago but is no longer on the market.

PAS Group fell into voluntary administration in May owing creditors $57 million after the coronavirus pandemic forced it to close more than 100 stores and thwarted its attempts to raise $20 million in much-needed capital.

Creditors approved a deed of company arrangement in August, clearing the way for Mr Kestelman’s Queens Lane Capital to buy the wholesale assets, including Designworks, Yarra Trail and Marco Polo and the retail assets including Review and Black Pepper in two separate transactions, which are expected to be completed in November and December.

Proceeds from the deals will flow into the deed of company arrangement fund and unsecured creditors are expected to receive a distribution of between 4¢ and 19¢ in the dollar within 12 months.

Mr Morris said funds for bolt-on acquisitions and new licences would come from Queens Lane, the private equity investment arm of Mr Kestelman’s LK Group. Queens Lane was set up three years ago and targets small and mid-market companies with earnings (EBITDA) of up to $10 million a year.

Mr Kestelman, the founder of internet company Dodo and owner of the National Basketball League, owned 10 per cent of PAS Group before it went into administration and used the stake to block a takeover offer from US-based investment company Coliseum Capital three years ago.

Mr Morris said Queens Lane also planned to invest in marketing to boost the profile of PAS Group’s existing brands and licences, which include Everlast, Lonsdale, Slazenger, Mooks and Bluey, expand into new categories such as footwear and accessories, and invest in its online business.

The online business has grown strongly during the pandemic and now accounts for almost 20 per cent of sales, while the Everlast and Lonsdale brands have benefited from the boom in athleisure wear and home gym equipment during COVID.

PAS Group also plans to rebuild the Designworks business, which supplies private label products for department stores and discount department stores including Myer, Kmart and Target.

“At the appropriate time, once retail conditions are different, we’ll open new stores in the right locations,” said Mr Morris.

About 30 stores were closed during the administration, leaving a network of about 166 stores, and the loss-making Jets swimwear business was sold in August to Seafolly, less than a week after Seafolly creditors approved a deed of company arrangement proposed by owner L Catterton.

“We’re getting back to business as usual,” Mr Morris said.