If the recent Maidenform (NYSE: MFB) IPO proved anything, it’s that the bra industry is robust. Maidenform, the intimate apparel manufacturer, debuted on the New York Stock Exchange on July 22, pricing above the initial range of $14-$16 at $17 and quickly shot up to $20.17, nearly a 20% rise even after increasing the allotment by 2.8 million shares to 12.8 million. As of press time last Wednesday the company was trading at $19.15 a share. Ares Management LLC scored a solid return.
Ares first invested in Maidenform via a leveraged recap in May 2004, acquiring 65.3% of the company for $47 million in equity. Ares used its 2002 Ares Corporate Opportunities Fund L.P. to make the investment.
The deal has turned out to be a real winner for Ares, which immediately pocketed $70.9 million from the IPO. Additionally, Ares stands to gain $8.3 million from a special dividend, a buy back of preferred stock held worth $26.9 million and 37.4% of the company, if underwriters do not use their over-allotment option. In total Ares stands to make approximately a 6x return on capital in 14 months, including its $166 million stake still in the company.
Everyone Makes Money
Oaktree Capital Management booked a profit when it sold to Ares and rolled over a 20.8% stake in the company. Oaktree sold its entire stake in the IPO reaping $70.1 million. On the conservative side that puts Oaktree’s return at over 5x capital, using the rolled over share valuations.
This is all for a company that had net losses for the entire year in 1995, 1996, 1997, 1998, 1999, 2001 and 2004. Even earnings on a pro-forma or EBITDA basis show the company is still trading at high multiples. For 2004, pro-forma earnings were $13.8 million or 10x its EBITDA earnings of $44.7 million. These are earnings that the company needs considering it has $150 million in an amortizing term loan maturing in 2010, additionally the company has already drawn down $10 million from its revolver. Even the one bright spot for cash flow, its $92.6 million in tax-loss carryforwards, isn’t set in stone. If there is a “change in ownership” greater than 50% during a three year testing period the company would lose the tax credits, according to the IPO prospectus.