Isaac, meet Xcel.
Isaac Mizrahi has a new backer in Xcel Brands Inc., which has acquired the designer’s licensing business for $31.5 million.
At the same time as buying Mizrahi’s company, IM Ready-Made LLC, Xcel will go public through a reverse merger agreement with NetFabrics Holdings Inc., essentially a publicly held shell company traded on the pink sheets. The newly merged entity, renamed Xcel Brands, will be a publicly held brand licensing and management company whose priority will be the acquisition of brands having a strong interactive media presence and the ability to utilize a multichannel distribution strategy.
Under the terms of the Mizrahi agreement, Xcel will pay the designer $31.5 million at closing, which includes a combination of cash, a seller note and the issuance of Xcel common stock valued at $13.8 million. Xcel also agreed to an earn-out arrangement with the designer that calls for an additional amount up to $32.70 in cash or stock, subject to achieving certain minimums in royalties generated by the Isaac Mizrahi trademarks over a four-year period.
The acquisition marks a comeback for Xcel Brands’ chief executive officer Robert D’Loren — and the fourth backer for Mizrahi during his career.
D’Loren is best known for securitization deals that to this day are still unparalleled in the intellectual property field — and that have had a somewhat controversial history.
In D’Loren’s securitization deals, including the $25 million bond securitization of the Bill Blass trademarks in 1999, investment-grade bonds were backed by the income streams associated with the brand’s intellectual property. The cash flow from accounts receivable are first used to pay operating expenses, with the excess income earmarked to pay down the note.
Mizrahi, who will serve as chief designer, said, “We’ve spent nearly a year working closely with Bob D’Loren and look forward to joining him at Xcel. I’m pleased to be such a significant shareholder in the company, and believe that we are poised for growth.”
The transaction is the latest in a series of changes for Mizrahi, first with Chanel until they parted company in 1998, and then a collection at Target that ended in 2008, even though annual volume was estimated at $300 million a year.
The colorful and opinionated Mizrahi has a daily Web series featuring his take on cooking, style and fashion, at watchisaac.com. There’s also a media presence via isaacmizrahiny.com, where visitors to the site can watch the designer’s video blogs.
Mizrahi’s licensing business includes the lifestyle collection, IsaacMizrahiLIVE, which is sold at home shopping specialist QVC, and Liz Claiborne New York, also sold at QVC, in which Mizrahi is the creative director per a design agreement. The main Liz Claiborne line, in which Mizrahi has no involvement, is sold exclusively at J.C. Penney.
Market sources estimate that royalty income for Mizrahi totals at least $10 million annually.
Mizrahi’s high-end Collection line, not part of the Xcel acquisition, will likely be phased out and repositioned as a licensing business. He has shown that collection in the past during New York Fashion Week but did not show this season.
Current plans are for additional licensing agreements for different apparel lines, footwear and home categories to launch at better retailers in fall 2012. -WWD
http://www.XcelBrands.com/