The pandemic was rough for many retail brands, but it was a golden opportunity for Authentic Brands Group (ABG). The licensor of a wide variety of brands, from Marilyn Monroe to Barney's New York, partnered with Simon Property Group (NYSE: SPG) through their shared entity SPARC Group to acquire Brooks Brothers and Eddie Bauer. Now Authentic Brands is planning an IPO at a reported $10 billion valuation, something that may be good news for Simon and other landlords in the long run. Let's take a look at the prospectus and what this could mean for retail REITs (real estate investment trusts).
A history of prestige brands
Authentic Brands was founded in 2010 and has consistently added to its stable of celebrities (both living and dead) as well as retail brands that may have lost their lustre. It then licenses these names to manufacturers in the U.S. and around the world. In 2020, nearly 80% of the Authentic Brands' licensing revenue came from North America. While e-commerce is a big part of the ABG story, the company's brands are sold in approximately 6,000 branded stores and shop-in-shops around the world.
This isn't the first time that Authentic Brands has decided to launch an initial public offering. It first planned to IPO in the first half of 2016. At that point, the company was reporting around $75 million in earnings before EBITDA. In 2020, its net income was $211 million. Revenue was $165 million in 2015 and was up to $489 million in 2020.
SPARC Group Holdings is the largest licensee of ABG and has 1,300 retail stores. It made $2.6 billion in sales in 2020 and reported $850 million in global sales for the first quarter of 2021. Simon is SPARC's largest landlord. ABG and Simon each have 50% ownership of SPARC. In Simon's first-quarter 2021 earnings call, Simon Property Group CEO David Simon spoke glowingly of SPARC and its Eddie Bauer acquisition, saying that it's doing fantastic and outperforming its sales plan.
What's next for ABG?
Authentic Brands is continuing its speedy acquisitive pace. In June 2021, it purchased Izod, Van Heusen, Geoffrey Beene, and Arrow from PVH for around $220 million. Meanwhile, the number of brands that ABG could buy seems nearly infinite. It plans to expand into electronics, home, food and beverage, as well as brands with global appeal.
But ABG's value proposition isn't just about gobbling up licenses -- it's also about figuring out how to maximize the value of each brand. Each brand can be licensed out into a variety of categories. For example, its Sports Illustrated brand could be used for gambling, ticket sales, and more. ABG is also just beginning to tap the nascent market for NFTs using many of its celebrity brands, including a recent auction of NFT artwork to celebrate Marilyn Monroe's 95th birthday.
How Simon could cash in
A strong showing for the ABG IPO could be good news for Simon. After all, given their close relationship through SPARC, Simon has an interest in seeing ABG succeed.
As ABG acquires more brands, both through SPARC and separately, that could mean more tenants for Simon properties. So far, ABG and Simon have been successful with revitalizing brands, including turning Aeropostale back into a desirable label by making smart use of social media and capitalizing on fashion trends.
Even another retail slowdown could end up being somewhat good news for Simon because it would create new targets for ABG to acquire. ABG is also looking to develop a loyalty membership program across all of its brands. That could strengthen individual brands and even potentially drive foot traffic.
While it's too early to know if the retail resurgence we've seen in recent months will last, the enduring nature of the ABG brands and the success of the SPARC partnership should be a long-term positive for Simon Property Group shareholders.