Alo Yoga is ready for sale or public offering after the owner sold his wholesale T-shirt business

Last month, in a deal that drew little interest from Wall Street's investors, the owner Alo of popular yoga apparel maker Alo agreed to sell Bella+Canvas wholesale T-shirt division.

Alo's founders and equities experts haven't spoken about the future of the brand, but retail M&A advisors say the deal will prepare Alo for a possible public offering or sale in the future as Lululemon struggles and new competitors emerge. Neil Saunders of GlobalData Retail, managing director, says that the sale of Bella+Canvas hasn't closed yet but will give Danny Harris and Marco DeGeorge greater flexibility and options to create a high-end, athleisurewear brand for Alo.

"Alo has reached a stage of maturity where it is time to do something about it. Saunders explained that you can either IPO the company, sell it or launch something new to complement Alo. Harris and DeGeorge haven't publicly discussed whether they are contemplating a public offering or sale. Bella+Canvas did not reveal its affiliation with Alo in its announcement of the sale and it was removed from its website after an email asking about this last month.

Alo and Bella+Canvas declined to comment. SanMar spokesperson, who agreed to purchase Bella+Canvas at an undisclosed price, stated that there had been no change since May 18, when the deal was announced.

CELEBRITY APOLOGY

Harris and DeGeorge built Bella+Canvas from a garage in 1992 into one of the biggest manufacturers of wholesale apparel and?T-shirts in the U.S. Color Image Apparel Inc., the parent company of Alo Yoga, has relied on this revenue stream for years.

Alo is short for air land ocean. The duo started the company in Los Angeles almost 20 years ago. Alo gear has been seen on celebrities like Taylor Swift and Bella Hadid, who have all been seen running errands or doing pilates.

A person familiar with Bella+Canvas said that as its popularity increased, its sales and profits also grew. This led to it eventually becoming the larger business.

Alo will be easier to value and understand for investors or buyers by shedding Bella+Canvas. This makes the sale or IPO much simpler, according to retail analysts, M&A advisors, and investors. It would not be Alo's first attempt to raise capital from outside if it decided to sell or become public. In 2023, the company held discussions with private equity firms as well as other potential investors to find its first investor in a deal which could have valued them at $10 billion. Sources said that Wall Street felt Bella+Canvas did not add value to the company and complicated its story for investors. No deal has been announced.

Cristina Fernandez is a managing director at Telsey Advisory Group and a senior research analyst.

LEGGIN TO LUXURY

Alo, which was founded in 2007 as a clothing line for yoga, has since expanded to skincare, footwear, wellness, and beauty products. The company has increasingly targeted the luxury market. Last year, it launched a leather duffel bag that cost $3,600.

It is in direct competition with the industry leader Lululemon as well as several other athleisure brands, such as Vuori and Fabletics, which are vying for dominance. According to reports, these three brands were considering initial public offering in the past few years.

Yoga pants and sweatsuits were in high demand during the COVID-19 epidemic as consumers wanted more comfortable clothes to wear while working at home. As corporate bosses began to require more employees to work in the office, new competitors entered the market. This shifted consumer preferences away from loungewear.

" Certainly peaked during pandemic. Sky Canaves, principal analyst at Emarketer, said that since then it has lost some casualwear market share. "More generally, we're experiencing a period where athleisure clothing growth is normalizing in the U.S."

Lululemon has felt the shift, where the company's poor performance over a number of quarters led to an argument with founder Chip Wilson. Lululemon stock is down 50% so far this year, giving the company a value of about $12 billion.

Wilson claimed that the company "lost its cool", and blamed it on the board, for the declining share prices. The board however accused Wilson of outdated views and attacks which damaged the brand. The two sides reached an agreement last month.

Founder-owned firms typically bring institutional investors in before an IPO. This is to establish a benchmark value to justify later what they expect from public investors. They can list without external capital. Alo's founders seem to know exactly what kind of capital they are looking for: DeGeorge stated in the Bella+Canvas announcement that "it was important to my partner and I that Bella+Canvas joined a privately owned, family-owned business rather than private equity."

Color Image Apparel is owned by Harris and?DeGeorge, who have grown the business without outside institutional investors. Forbes estimates that they are each worth $3.7 billion.

Alo has 150 stores worldwide, including yoga studios that offer classes at some locations. It also operates a gym in Beverly Hills where celebrities can train in the company’s $100+ leggings.

Canaves stated that "Alo's campaign is more exclusive, higher-end and has stronger ties to luxurious products which really appeal to the wealthy or aspirational consumers." Their most recent campaign involved a superyacht on the French Riviera. Abigail Summerville reported from New York. Dawn Kopecki, Deepington Babington and Dawn Kopecki edited the report.

(source: Reuters)