Fashion chain Castro Model Ltd. (TASE: CAST) has signed an agreement to buy half the shares in the Hoodies group at a valuation of NIS 356.4 million, representing 5.4 times Hoodies' EBITDA in 2015. Castro has bought 26.4% of Hoodies and received an option to raise its stake to 50%.
The deal covers fashion chain Hoodies, accessories chain Top Ten, sunglasses chain Carolina Lemke, and international accessories chain Accessorize.
Castro will pay NIS 75 million cash for the shares and will allocate the sellers shares in Castro. Last year, the Hoodies group's operating profit was NIS 48 million and it posted a net profit of NIS 34.6 million.
The current deal comes three years after Castro withdrew from negotiations on a deal to buy half the Hoodies group at a valuation of NIS 100 million. The valuation is now three times higher, but Hoodies' business has expanded considerably in the meanwhile.
This is in fact Castro's first ever acquisition. Up to now, the company has based itself on organic growth, apart from opening low-price jewelry chain Diva in partnership with the brand's owner, UK company DCK Concessions. This activity did not succeed and the parties closed down the chain in Israel after six years.
In the past, Castro has sought growth engines overseas, and opened a chain of Castro brand stores in Europe and East Asia, but like other Israeli fashion brands that tried their luck abroad Castro had to shut down this activity, in 2011, after incurring heavy losses.
The Hoodies group started out in Israel by buying the Hoodies chain, which then numbered seven stores and was on the point of collapse. Yossi Gabison, who heads the group, decided to develop the chain in Israel, and hired former Fox-Weizel Ltd. (TASE: FOX) manager Nitzan Israeli as CEO. They redesigned the stores, improved the collections, and hired model Bar Refaeli to front the brand. Gabison also developed the Top Ten accessories chain, based on manufacture in China, and handed day-to-day running of it to Nitzan Israeli as well.
In early 2011, the partners set up Carolina Lemke, a chain of sunglasses stands that later started to sell regular eyeglasses too. The chain was named after Gabison's life partner, giving it an overseas flavor. The chain now has 68 branches. Its marketing strategy includes low prices, the hiring of Bar Refaeli to advertise it in return for 4.6% of the shares, and an extensive advertising campaign.
Published by Globes [online], Israel business news - www.globes-online.com - on August 28, 2016
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