Santa Monica retailer and fashion brand Planet Blue needed cash to buy more inventory, redo its website and attract more online customers.
But when founder Ling-Su Chinn and her husband, Chief Executive James Williams, went to private equity groups for money, they were told they’d have to give up at least 30 percent of their company in exchange for less than $10 million.
Not wanting to hand over that much control, they opted for a smaller hybrid debt-and-equity arrangement with Santa Monica’s Breakwater Investment Management LLC. In a deal that closed last week, Breakwater will invest up to $6 million, some of it in the form of a loan, in exchange for up to 10 percent of Planet Blue. Breakwater’s valuation was slightly higher than that of other potential investors.
“It is a tradeoff,” Williams said. “The downside of debt is you have to pay it back. But the upside is it preserves more equity for the company.”
That kind of deal is a specialty for Breakwater, said Saif Mansour, founder and managing partner. The company typically structures investments with a combination of equity investment and debt, allowing it to pick off deals from private equity firms that want more of a company than owners are willing to give.
“We preserve ownership in the original owners’ hands,” Mansour said. “We look for businesses that need a cost-effective solution to grow, but they don’t want to sell too much of the company away. They believe the company can have another turn or two of growth before an exit.”
That was the case for Planet Blue, a company Williams said could command a much larger valuation in a few years if its growth initiatives are successful. Along with expanding sales online, the company is opening stores in Japan and ramping up production of private-label apparel sold through Saks Fifth Avenue and other retailers.
“At our stage, our valuation is nowhere near where it can be,” Williams said. “Rather than getting more money upfront and giving away more control, our goal was to work with a partner who could be more flexible.”
New Adviser
What does a private equity group do if it’s having a hard time boosting sales or cutting costs at one of its portfolio companies?
Larry Perkins hopes the answer is to look for an adviser with his specific focus.
Perkins, a veteran of Birmingham, Mich., turnaround consultancy Conway MacKenzie Inc., recently opened his own shop, Sierra Constellation Partners LLC, in downtown Los Angeles.
The firm plans to focus on providing turnaround consulting services to middle-market companies owned by private equity groups, family offices and other investors. Perkins said he’s seen a growing number of companies owned by the type of investors who often lack operational know-how.
“They’re often looking for pretty heavy operational talent, which is what our team provides,” Perkins said. “There may be an owner who is good at driving sales growth, but they may not understand how to manage the cost structure.”
Sierra Constellation has a team of eight, most of them from Conway McKenzie’s L.A. office. Perkins said his team has experience working with manufacturing, distribution, health care, consumer products and apparel companies.
Diamond Deal
Hanmi Financial Corp., parent of Koreatown’s Hanmi Bank, is looking to cash in on L.A.’s newest South Korean import: Los Angeles Dodgers hurler Hyun-Jin Ryu.
The bank last week signed a six-year marketing deal with Ryu, a 26-year-old southpaw who played pro ball in Korea before joining the Dodgers this winter. As part of the deal, Hanmi will donate $1,000 to a charity of Ryu’s choice for each of his hits and strikeouts. Other terms of the deal were not disclosed.
In a press release, Hanmi Chief Executive Jay Yoo said Ryu’s move to the United States from Korea “exemplifies our spirit of embracing new challenges and illustrates our dedication to growth.”
Ryu isn’t the first major leaguer the bank has signed up as a spokesman, but he is the first to play in Hanmi’s market. In 2011, the bank, which has no branches outside California, inked a deal with Korean outfielder Shin-Soo Choo, then with the Cleveland Indians and now with the Cincinnati Reds.
The bank last week extended Choo’s contract for another two years. Both Ryu and Choo are represented by Newport Beach agent Scott Boras.
C-Suite News
Jeff Werbalowsky, longtime co-chief executive of Century City investment bank Houlihan Lokey, was named co-chairman, leaving Scott Beiser as the firm’s sole chief executive. The two had shared CEO duties for 10 years.
Staff reporter James Rufus Koren can be reached at [email protected] or (323) 549-5225, ext. 225.
