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Liz Claiborne acquires prAna

prAna, the fast-growing maker of apparel for climbing, yoga and outdoor activities, has been acquired by women's wear giant, Liz Claiborne Inc.

The purchase price of $34.4 million consists of an initial payment of $32.5 million (representing 60 percent of prAna's valuation) and the retirement of debt at closing of approximately $1.9 million. prAna's owners will receive additional payments based upon a multiple of prAna's earnings in the fiscal years 2008, 2009 and 2010.

prAna co-owners and founders Beaver and Pam Theodosakis, and Demian Kloer, will continue to run the company. prAna, based in Vista, CA, is expected to generate net sales of approximately $30 million in fiscal 2005.

“One of the primary reasons we selected Liz Claiborne was because of our ability to maintain a significant economic interest and independence in running prana, which will allow us to preserve the quality and essence of the prAna brand that our customers and retailers expect,” said Beaver Thedoskis, prAna's president. “This relationship goes far beyond the bottom line as we are highly impressed by Liz's brand-building capabilities and corporate commitment to people, fair trade and the environment. We have a great opportunity to share best practices in these areas."

Thedosakis said the sale allows his family to realize some return on the business first founded in 1992.

“We started this business in my garage and we never took on any partners so my whole net worth and home were wrapped up in it,” said Thedosakis. “So this releases some of that pressure. I can sleep a little bit at night.”

But Thedosakis also expects Claiborne's operational capabilities and backend support, as well as funding, to help grow the business. He says Claiborne should be instrumental in growing the brand overseas, which accounts for 12 percent of prAna's sales.

“They'll give us some ideas and resources and launch us to the next level,” said Thedoskis.

He also says prAna still sees substantial growth at its core outdoor and sporting goods channels. He stressed that prAna has no plans to grow at department stores, a key channel for many of Claiborne's brands.

"We're going to go deeper into the doors we're in," says Thedosakis. "Adventure 16 is a top account for us, and we do $120,000 there. Patagonia does a million so there's room to grow and we don't have to comprise."

Besides helping prAna growth, he also expects prAna will be able to realize synergies by combining back office functions, such as accounting and legal departments. Customer service functions will still be handled by prAna.

"We've been dealing with these stores for 13 years," says Thedosakis. "We know their names and we know their dog's names. So certain customer sensitive areas we want to keep close to the heart."

Overall, Thedosakis stressed that the critical reason he is is that prAna's "internal culture stays the same." He says the acquisition will not lead prAna to pursue "some crazy, accelerated growth plan," but follow the same steady, growth goals for the company.

He notes that prAna still be able to continue to make 70 percent of its goods in the U.S. if it chooses, noting that another Claiborne brand, Juicy Couture, makes about 95 percent in the U.S. And prAna can also keep supporting causes such as organic cotton, using sustainable materials and wind power initiatives. Soon after the deal was announced, Claiborne adopted the prAna Natural Power Initiative as part of its environmental policy.

As far as the sales process, Theodosakis says prAna engaged Sage Group to look for a "mentor" and came up with 6 or 7 "dream partners" it wanted to align with. Claiborne was the fourth highest offer, but prAna chose the company because of its' resources and "quality and integrity" of its management.

"There were three other deals that were much bigger financially, but because of the people and resources, we chose Claiborne. These are the people we want to marry for the next five yeras anda onward. We can keep our culture intact."

For Liz Claiborne, prAna provides the company with further diversification since prAna will be its only brand selling into the outdoor channel, and also provides an new growth opportunity. Claiborne's growth over the past few years have come from acquisitions such as Juicy Couture, Lucky Brand, Sigrid Olsen and the European-based Mexx.

Paul R. Charron, Chairman and CEO of Liz Claiborne, said: "prAna is quickly becoming one of the most influential brands in the outdoor lifestyle industry, having developed a reputation for coupling style and technical excellence with thoughtful and responsible operating practices. This acquisition allows us to partner with one of the strongest trending brands in the high-growth active, outdoor and yoga industries and provides further channel diversification into select outdoor stores and specialty retailers through the prAna brand. prAna has significant organic growth potential through optimizing the penetration of its core retail base. We believe there are abundant growth opportunities in new apparel categories and complementary brand extension opportunities in non- apparel categories which leverage Liz's core competencies in building lifestyle brands, as well as specialty retail and international expansion opportunities that preserve prAna's core retail network."

Charron continued: "We are pleased that prAna co-owners Beaver and Pam Theodosakis and Demian Kloer will continue to drive the Company as it is their vision and leadership that created prAna. A global strategic partner like Liz brings a high level of intellectual and financial capital to the partnership that will help Beaver, Pam, Demian and their Charron continued: "We are pleased that prAna co-owners Beaver and Pam Theodosakis and Demian Kloer will continue to drive the Company as it is their vision and leadership that created prAna. A global strategic partner like Liz brings a high level of intellectual and financial capital to the partnership that will help Beaver, Pam, Demian and their team to successfully execute prAna's diversification and growth strategies. Our strong balance sheet and cash flow provide the necessary capital to fund prAna's growth objectives, while our operational capabilities and back-end support will enhance prAna's ability to continue to offer excellent service to its customers. We look forward to working with the entire prAna management team to maximize their performance within Liz Claiborne. We expect this transaction to have no impact on fiscal 2005 earnings and to have a slightly accretive impact on fiscal 2006 earnings."


The Sage Group acted as exclusive financial advisor to prAna.