The Business of Fashion

Fashion investing | Return of the strategic investor?

Apax Partners, the London-based private equity firm, has abandoned its bid to take a stake in Escada AG, the embattled German fashion company.  Citing deteriorating market conditions, Apax stated that

"the recent evolution of the stock price and the weakness of the international financial market do not give a basis for pursuing the project."

This is absolutely the right decision. Not only has Escada become somewhat of an industry basket-case in recent years, on Wednesday the company also revised its earnings projections for year ending October 31 downwards yet again. EBITDA margins are  expected to fall by about 25% compared to 2007. The company cited recessionary conditions in the USA and other key markets as the reason behind the revisions. Escada's shares fell by 10.8% on Wednesday to 14.35 euros.

Escada | In private equity's crosshairs?

Not long after Valentino Fashion Group was acquired by Permira in 2007, Escada AG is the latest major European fashion company to find itself in the crosshairs of a private equity firm. The German newspaper Handelsblatt is reporting that Apax Partners is considering taking a stake in the the German fashion company -- and possibly looking to execute an outright takeover.

Escada's stock lost more than one third of its value in 2007, and another third of value was obliterated in the first few months of 2008, making it a very ripe target for acquisition. But any Escada-turnaround effort backed by private equity will not be easy, even if the price is cheap. Last week, Escada reported that its sales continued to slide in the first quarter of fiscal 2008: revenues across its Escada and Primera divisions dropped by more than 10% when compared to the same quarter in 2007, and EBITDA, a measure of profitability and cash flow, fell by almost 70%.