Two Consumer Companies Test M&A Waters

Company: Tom Ford International

Financial Advisor: Credit Suisse

Company: Cliffstar Corp.

Financial Advisor: Morgan Stanley

Two consumer products companies have launched sales processes in a sign that sellers are increasingly testing the waters for M&A deals after a yearlong drought.

Tom Ford International, a New York-based luxury fashion house, and CliffStar Corporation, a New York-based private label juice maker, have engaged investment banks to advise them on M&A transactions.

Tom Ford International is on the hunt for financial backers, two sources familiar with the situation said. The company entered the market in recent weeks seeking a $50 million or greater investment, the sources said. Credit Suisse is managing the process. The capital would be used to expand the company’s line into women’s apparel, adding to Tom Ford offerings in meanswear, eyewear, beauty, fragrances, and men’s and women’s accessories.

Meanwhile privately-held Cliffstar has hired Morgan Stanley to advise it on a sale of the company, four sources familiar with the situation said. The Dunkirk, N.Y.-based private label juice maker has been widely shopped to financial suitors. Books were circulated in the past month with Morgan Stanley taking first round bids within the next week or so, the sources said.

While both companies are in the consumer products sector, they couldn’t be more different in terms of market positioning.

That a luxury fashion house like Tom Ford International would enter the market seeking financing is a sign of either optimism or foolishness, as consumers continue to trade down for less extravagantly-priced clothing. Time magazine reported that luxury department store sales have fallen 25 percent to 30 percent on average from their peak in early 2008.

Tom Ford, the man, is well known for reviving the fortunes of the House of Gucci, which is owned by the French luxury goods company PPR. In 2004, Ford left to launch Tom Ford International. The company’s products are carried at luxury retail chains worldwide, as well as in four freestanding Tom Ford stores.

Meanwhile, Cliffstar’s private label offerings have gained market share as consumers have traded down to cheaper store-brand products. In the past year, private label makers have grabbed market share from pricier branded products. Unit share grew 1.2 points to 22.8 percent, while dollar share inched up 0.7 points to 17.6 percent, according to a recent Information Resources report cited by Reuters, publisher of Buyouts. Additionally, commodity costs have sunk, which could serve to boost the company’s margins.

Still, private label companies compete on price alone and suffer from thinner margins than their branded competitors. One buyout professional said his firm passed on Cliffstar because it was too widely shopped.

The company sells store-brand juices to grocery chains and food service providers in the United States and Canada. Cliffstar was founded more than 100 years ago and remains under family ownership to this day. Revenues are roughly $700 million, according to two sources.

Executives at Cliffstar did not return calls for comment, while those at Tom Ford declined to comment.