Authentic Brands Group, the brand house that Jamie Salter founded in 2010, has turned into quite the investment for companies that believed in his vision.
One such investor, Simon Property Group, recently sold its interest in Authentic and disclosed how much it made on the deal.
“We sold our remaining interest in Authentic Brands Group during the first quarter for gross proceeds of close to $1.2 billion and recorded a pre-tax and after-tax gain of $415 million and $311 million, respectively,” CEO David Simon said during an earnings conference call this month. “The sale in the first quarter combined with the sale in the fourth quarter yielded gross proceeds of $1.45 billion.”
“We generated substantial value from the ABG investment and a 7x multiple on our net invested capital during our short ownership period,” he said.
ABG has made a splash over the past several years by buying notable brands that were struggling or in distress, including Nautica, Forever 21, Aéropostale, Reebok, Eddie Bauer, Brooks Brothers, Lucky Brand, Vince Camuto, Barneys New York, and Juicy Couture.
In our industry, Authentic Brands acquired Volcom in 2019 from French luxury company Kering, and Quiksilver, Roxy, Billabong, DC Shoes, RVCA, Element, Honolua, and Von Zipper from Boardriders in 2023.
All in all, Authentic now owns over 50 brands, which generate over $29 billion in annual sales at retail, according to Authentic.
Brand Model Broken
In 2021, Authentic filed paperwork to go public, which provided lots of information about the company’s business model and why investors found the company so attractive. Although Authentic later opted not to pursue an IPO, the paperwork provided interesting insight into Salter’s mindset.
In a letter to potential shareholders at the time, Salter describes himself as a big believer in brands. But he thinks the old model is broken and believes he has found the business model of the future.
“Before ABG, I worked all over the brand business — founding, managing, operating, wholesaling, and retailing brands,” Salter writes in the letter. “I enjoyed a long career on that side of the industry, met a lot of smart people and learned a great deal about how successful brands win.
“I came to realize that most brands were structured for a different era - before the speed of digital and the complexity of global; antiquated, and ultimately difficult to retool as the market and the consumer evolve.
“Being best-in-class in every competency at every step of the value chain is an impossible task for most teams, but that’s what defines success in the traditional model. Insource all activities, capital needs, and risk. A vast number of great brands are structured like this.
“In 2010, I met with my now partners at Leonard Green and told them that a business they knew intimately well, the brand industry, was broken. Over-retailed, burdened by legacy cost and inefficiency, and not equipped to win in the ongoing digital transformation.
“I pitched the idea of a new breed of brand licensing company. Within the hour, they ‘got it.’ We founded and capitalized ABG and set out to execute on our vision.”
“Asset-Light”
In the IPO filing in 2021, Authentic described its financial model as “asset-light” which it says generates a predictable base of recurring revenue, high operating margins, and attractive cash flows.
“The vast majority of our license agreements include guaranteed minimum royalties (GMR), which provide a high degree of predictability to our licensing revenue. Eighty-three percent of our revenue in 2020 was attributable to GMR payments. Beyond the GMRs received from licensees, ABG generates a significant amount of revenue from the collection of overages above the GMR base set for each brand. Our predictable and recurring revenue streams, combined with our attractive margins and minimal capital expenditure requirements, result in high cash flow conversion and increased capacity to invest in future growth initiatives.”
In general, ABG requires new licensing partners to pay the first year guaranteed minimum royalty upfront when the deal is signed. After that, the fees are due quarterly, according to the documents.
More Acquisitions, More Investments in Authentic
Authentic shows no signs of slowing down.
In the past few years, the company signed a strategic partnership with David Beckham to co-own and manage his global brand; completed its largest acquisition to date with Reebok; and finalized the acquisition of British lifestyle brand Ted Baker. It also acquired the intellectual property of luxury lifestyle brand Vince and outdoor lifestyle brand Hunter, in addition to acquiring Boardriders.
Last year, the company announced a $500 million primary follow-on investment from its current investor General Atlantic, a private equity firm.
General Atlantic first partnered with Authentic in October 2017, and its latest investment brings the firm’s total invested capital in the company to nearly $2 billion, according to Authentic.