Cherokee Global Brands, which manages a growing portfolio of fashion and lifestyle brands, announced intentions to enter into a share purchase agreement to acquire Hi-Tec Sports International Holdings B.V. Cherokee also announced that it intends to offer and sell, subject to market and other conditions, shares of its common stock in a public offering pursuant to an effective shelf registration statement. Roth Capital Partners is acting as the sole manager for the offering. Cherokee expects to use the net offering proceeds to fund a portion of the proposed acquisition of Hi-Tec Sports International Holdings B.V.
According to the proposed agreement, the Hi-Tec business will be converted to a branded licensing model, consistent with CGB’s ongoing strategy. Upon closing of the transaction, Cherokee will sell substantially all assets related to Hi-Tec’s wholesale operations to new operating partners, the proceeds from which shall fund a portion of the Hi-Tec acquisition purchase price. Concurrently, the new operating partner licensees are entering into license agreements with Hi-Tec Sports International Holdings B.V., a wholly owned subsidiary of Cherokee Inc., pursuant to which each operating partner will pay Cherokee royalties for the future use of Hi-Tec intellectual property. The headquarters of Hi-Tec will remain in Amsterdam.
In view of the founder’s strong ties with Africa, the subsidiary Hi-Tec Sports South Africa has been purchased by Hi-Tec’s founder, Frank van Wezel himself. He has negotiated a license and distribution agreement with Cherokee which enables him to grow the company and its brands (such as Hi-Tec, Magnum, Carrick and Interceptor) strongly in that part of the world.
Founded in 1974 and based in the Netherlands, Hi-Tec’s brands are sold in more 110 countries, predominately in the United Kingdom, Continental Europe, the United States, Canada, South and Central America and Asia. In 2015, Hi-Tec recorded revenue of approximately $143 million (based on a 1.1 Euros to each U.S. dollar exchange rate, which represents the average exchange rate for calendar year 2015), on worldwide wholesale sales estimated by third-party research to be approximately $288 million, including products sold under the Hi-Tec and Magnum brands.
Assuming the Hi-Tec acquisition is consummated, Cherokee expects Hi-Tec to contribute approximately $19 million of licensing revenue and $7 million in Adjusted EBITDA during the first full fiscal year after the closing of the acquisition.
Cherokee intends to fund the purchase price through cash on hand, proceeds from a new credit facility with Cerberus Business Finance, LLC (“Cerberus”), proceeds from the sale of assets, including to the new operating partner licensees, a receivables funding loan to be provided by its Chairman of the Board and the net proceeds from the proposed public offering of common stock as further detailed in the preliminary prospectus supplement filed by the Company on November 28, 2016.
The acquisition will be effected by a share purchase agreement under which Cherokee Global Brands will acquire all the issued and outstanding share capital of Hi-Tec Sports International Holdings B.V., for an aggregate cash purchase price of approximately $95.8 million on a cash-free debt-free basis, based on normalized working capital. Subject to post-closing adjustments, and after giving effect to the asset sales and the other transactions in this release, Cherokee expects that the purchase price for the Hi-Tec intellectual property assets to be retained by it will be approximately $62 million. The parties expect the transaction documents to become effective on November 29, 2016 and the transactions to close in the current fiscal quarter ending January 28, 2017.
NIBC Bank is acting as exclusive financial advisor to Hi-Tec, and Houthoff Buruma is acting as legal advisor to Hi-Tec. Houlihan Lokey and Symphony Investment Partners are acting as financial advisors to Cherokee, while Morrison & Foerster is acting as legal advisor.
Cherokee also announced that it intends to offer and sell, subject to market and other conditions, shares of its common stock in a public offering pursuant to an effective shelf registration statement. Roth Capital Partners is acting as the sole manager for the offering.
Cherokee expects to use the net offering proceeds to fund a portion of the proposed acquisition of Hi-Tec Sports International Holdings B.V.