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Retail M&A:
Time-Tested Brands Sell

Consumers flock to household names, and so do middle-market dealmakers

Buyers in the consumer goods and retail sectors are looking for brands with longstanding cachet and room to grow, as PVH Corp.'s (NYSE: PVH) recently-announced acquisition of apparel designer and distributor the Warnaco Group Inc. (NYSE: WRC) demonstrates. The $2.9 billion deal, which is expected to close in early 2013, gives PVH several household names popular with consumers, including Calvin Klein, Speedo, Body Nancy Ganz/Bodyslimmers, Warner's and Olga.

"I think a driving force was to put Calvin Klein back under one roof," says Alan Myers, partner at Skadden Arps Slate Meagher & Flom LLP, who advised Warnaco on the deal.

PVH has owned Calvin Klein since 2003, but Warnaco kept operating the jeans and underwear business.

Calvin Klein, which PVH will acquire the rest of through the Warnaco deal, is synonymous with fit and form - with knowing no matter what shape a woman's body is, there is a style that will work for her - making it valuable, according to managing director Joe Pellegrini (pictured) from investment bank Robert W. Baird & Co. Prior to his investment banking career, Pellegrini spent seven years in the National Football League, playing for the New York Jets and Atlanta Falcons.

"The deal made an incredible amount of sense," says Pellegrini.

PVH's stock rose from a close of $91.50 on Oct. 31 to close at $113.71 Nov. 1, the day after the deal was announced.

Right now the brands that are really resonating with consumers aren't the ones that spend a lot on advertising, they are the ones that have another factor - like superior fabrics or an established lifestyle vision - according to Pellegrini.

"Those are the brands that are going to be in higher demand because they are the most difficult to replicate overnight," Pellegrini says.

Those brands include Sperry, Spyder and North Face, according to Pellegrini, because they offer a product that comes with an emotional connection to a lifestyle that a consumer may want to have.

For example, the North Face brand products can be used to climb Mt. Everest, but people who just like that idea or lifestyle vision, Pellegrini says, can also use them. The brand, which has the slogan "home of technically advanced, innovative apparel, footwear, and gear that inspires athletes to never stop exploring," doesn't have an easily replicable 40-year history. North Face is owned by VF Corp. (NYSE: VFC).

There is an enormous appetite for brands with affluence, which are viewed as "authentic brands," Pellegrini says. North Face represents one of the best brands for climbing, but it also represents a cool or healthy way of living that people connect to.

"People buy for the meaning," Pellegrini says. They already have a pre-conceived notion of what they want before they walk into a store.

One way to resonate with a buyer is through social media and e-commerce, according to Adrian Barrow, head of planning for marketing firm JWT in New York. Their clients, he says, are trying to take advantage of consumer search behaviors - how people use their phones and tablet to search for product reviews and better prices on a product before and while they shop.

The companies that invest in social media have a chance to de-commoditize the product by finding ways to add information services for the consumer.

Though it's hard to track if social media has an impact on a company's bottom line, according to Barrow, indications are that social media does create a return on a company's investment; it just may not be immediate.

Social media isn't the only technology companies have been using - mobile payment sector M&A has had a string of deals in 2012.