Case study: Industry Roll-up/Consolidation
Linsalata Capital Partners Fund III, LP invested in Alpha Shirt Company in April 1999. At that time, Alpha enjoyed sales of $245 million. It was one of three or four companies vying to lead the imprintable sportswear distribution industry. Alpha, and its competitors, served as wholesalers between large apparel mills and the multitude of small decorators, team dealers and corporate promotion houses. At the time of LinCapís investment, Alpha boasted more than 11,000 SKUS (styles, sizes and colors) and served over 45,000 customers. The market was growing rapidly, fueled by an increasingly casual corporate America and a proliferation of corporate brands and logos. Alpha reached its customers through an industry-leading catalog, a large customer service operation in Philadelphia, and a direct sales force to call on large accounts with distribution centers in Philadelphia, Ft. Wayne and Los Angeles.
Alphaís owner sought LinCapís help to transition from third generation ownership as the company faced significant investment and operating demands to sustain its rapid growth curve and make the leap to national distribution amidst increasing complexity. LinCapís experience was well suited to facilitate the building of systems, controls and organizational depth to realize managementís vision.
During LinCapís five-year tenure with Alpha, the company nearly doubled sales and improved EBITDA margins by almost 50 percent. LinCap encouraged and facilitated managementís acquisition of two smaller, regional competitors as a more cost effective and timely way to fill in key market geographies in Tampa, Florida, and Houston, Texas. The key was seeking out and capturing operating scale economies to offset declining gross margins. Given the size and vision of the company, LinCap supported key management additions to supplement the existing team, particularly in the areas of Marketing/Merchandising, Distribution Management, Finance, Information Technology and Customer Service. The company invested significantly to upgrade its systems to state-of-the-art e-commerce capabilities and online customer service support that seamlessly integrated three call centers. Distribution operations were standardized across all sites to best practices and integrated inventory availability. Inventory turns increased by 50 percent, reducing inventory by more than $20 million despite SKU growth to over 16,000. Alpha also benefited significantly from purchasing leverage with the mills as Alpha rapidly proved itself as unique in its financial and operating capabilities to handle very large buys increasingly sought by the mills. Toward the end of LinCapís investment, Alpha had reached the scale necessary to develop its own private label brand that it sourced directly overseas as the vehicle to recoup and improve gross margins going forward.
LinCap led the sale of Alpha Shirt Company in September 2003 to affect its merger with Broder Bros., a similarly sized competitor backed by a private equity group. With combined revenues then approaching $1 billion and a dominant market position, the new company further enjoyed lower cost financing through the public debt markets.