UPDATE: December 11, 2019: Marquee Brands' proposal to take over Destination Maternity's intellectual property and other assets, and liquidate the retailer's stand-alone stores, emerged as the winning bid after Destination Maternity canceled an auction, according to court papers. The bid is subject to court approval and will be considered at a hearing scheduled for Dec. 12.
- Destination Maternity has a stalking horse bid worth $50 million from brand owner Marquee Brands ahead of the retailer's Chapter 11 auction, expected to take place Dec. 9, according to a press release and court papers.
- Under the bid, Destination Maternity's remaining 235 stores, i.e. those that aren't part of its current downsizing in bankruptcy, would close. Hilco Merchant Resources and Gordon Brothers Retail Partners are joint venture partners on the bid with Marquee, which owns the BCBG and Martha Stewart brands among others.
- Marquee would take over the maternity apparel retailer's e-commerce business, intellectual property, strategic marketing partnerships, leased departments inside department stores and specialty baby stores. The stalking horse bid, if approved by the judge overseeing Destination Maternity's Chapter 11 case, would set a baseline for the company's asset auction.
Destination Maternity entered bankruptcy in late October with 436 stores as its turnaround efforts failed and the retailer ran out of money to pay its landlords and vendors. The retailer had plans at the time to close nearly half its footprint but keep the rest of its stores operating as it looked to sell itself in bankruptcy.
As part of that effort, Destination Maternity said in court papers last week that its investment bank had contacted more than 180 potential buyers, signed 50 confidentiality agreements, has 21 "active potential buyers" conducting due diligence currently and has given eight management presentations to potential bidders.
That means the bid from Marquee, which is backed by investment firm Neuberger Berman, might not be the final word on the fate of Destination Maternity's remaining stores. But the bid, if approved, would also come with protections in the form of a break-up fee of 3.5% of the winning bid price and fees covering the joint venture's expenses worth up to $750,000.
Brand licensing companies like Marquee, Authentic Brands Group, Bluestar Alliance and others have found plenty of buying opportunities amid the rash of bankruptcies hitting the retail industry over the past three years. While the retail business of those brands may have been overwhelmed by some combination of debt, shifting markets and consumer preferences, and mismanagement, often the brands still hold some value to consumers.
Authentic Brands, which just picked up the Barneys brand assets in the department store's bankruptcy, has built a profitable (though leveraged) business out of vacuuming up brands and licensing them out to manufacturers, retailers and other third parties. That gives the licensing company a high margin model with few assets and few liabilities.
Destination Maternity, according to the company's executives, is still relevant to the maternity clothing market. Lisa Gavales, chair of the "Office of the CEO" (a unit created after the company's latest chief executive departure), in earlier court papers cited statistics showing one-third of expecting mothers engage with the company.
The retailer grew from a mail-order catalog to one of the leading retailers in the space. But declining births and increasing competition from other apparel retailers and generalists like Target have shaved off nearly a third of Destination Maternity's revenue in the past five years. The company has also been in chaos, cycling through five CEOs in as many years and going through a bruising proxy fight with activist shareholders.