Fading denim brand Diesel USA files for Chapter 11

BY Fraser Tennant

Blaming falling sales, a fumbled turnaround, expensive leases and inflexible landlords, denim and accessory brand Diesel USA has moved to protect itself from creditors and filed a voluntary petition for relief under Chapter 11 bankruptcy.

Hit hard by the ongoing downturn in the retail sector, the New York-based arm of Italian retail clothing company Diesel S.p.A. has seen annual sales plummet 53 percent, to $104m. In addition, cyber attacks and theft have proved costly to the retailer.

The Chapter 11 petition estimates up to $100m in assets and as much as $50m in debt. Diesel’s parent company the OTB Group is not part of the Chapter 11 filing.

Diesel’s bankruptcy comes at a time when several retailers, such as shoe store Payless, Victoria’s Secret and Gap, have reduced their footprints and closed stores following bankruptcy. However, unlike these retailers, Diesel intends to breathe new life into its US brand.

“The filing is a critical step in enabling Diesel USA to address certain long-term liabilities for a healthier and stronger business in the country, building a dynamic brand presence in line with the evolving US retail environment,” said Diesel in a statement. “This procedure opens the way to a redefinition of the brand’s geographic footprint in the US.”

This redefinition of the brand will include some important milestones for Diesel USA in 2019, including refitting and reviewing most of its retail store network and making sure its retail footprint meets the needs of both existing and new consumers.

Diesel is also looking to strengthen its e-commerce presence and has pledged to redouble its commitment to innovation via a series of key wholesale partnerships designed to give resonance to the retailer’s collections and special products, with tailored buying and distribution activities planned for each.

A premium denim and accessory brand which dominated pop culture in the 1990s and early 2000s, Diesel USA currently has 380 employees and 28 retail stores in the US, as well as relationships with department stores and specialty retailers.

The Diesel statement concluded: “We remain fully committed to the US market, a unique and fundamental window to an important player globally.”

News: Jeans maker Diesel USA files for bankruptcy

Iconic UK sports car manufacturer acquired by European investment firm

BY Fraser Tennant

One of the most iconic names in the automotive world, Morgan Motor Company has been acquired by Italian investment firm Investindustrial – which has taken a majority stake in the 110-year old British sports car manufacturer.

The financial terms of the transaction have not been disclosed. However, the investment is being executed without financial debt and Morgan will have a positive net cash position upon closing of the transaction.

Founded in 1909, Morgan hand-builds premium sports cars with a classic design in its historic factory in Malvern, UK, which is visited by more than 30,000 people each year. With revenues of £33.8m and a net profit of £3.2m in 2018, the company sells around 700 cars per year. It is also one of the last remaining British-owned carmakers.

“The past two years have been the most successful in our company’s history,” said Dominic Riley, chairman of Morgan. “However, to really fulfil our full potential and secure our long-term future, both the family and management team felt it was essential to bring in a strategic partner – a partner that shares our vision and has the expertise, financial resources and track record of success in the automotive world, to make it happen. That partner is Investindustrial.”

Following completion of the acquisition, the Morgan family will continue to act as stewards for the brand and retain a minority shareholding. And, for the first time in its history, the management team and all employees will have a share of the business.

“Morgan’s handmade British sports cars are true icons of the industry,” said Andrea C. Bonomi, Investindustrial’s chairman of the industrial advisory board. “We have followed the company and seen its progress for some time and see significant potential for Morgan to develop internationally while retaining its hand-built heritage. We share with the Morgan family the belief that British engineering and brands are unique and have an important place in the world.”

The transaction is expected to be completed in April 2019.

Steve Morris, chief executive of Morgan, concluded: “The future is bright for Morgan. We are coming off the back of two record years and now have the best possible owner and partner to take the business to the next level and develop Morgan’s global potential.”

News: Morgan family sells control to venture capitalist group

Chemicals dealmaking to remain robust despite headwinds

M&A activity in the global chemicals industry is expected to decline slightly in 2019 in the face of ongoing uncertainty, according to Deloitte’s 2019 Global Chemical Industry Mergers and Acquisitions Outlook.

The report suggests that rising interest rates, trade tensions and slowing economic growth will impact M&A activity in the sector, though the market will remain robust.

Global M&A volume in the chemicals space reached 600 deals in 2018, a decline of 5 percent compared to 2017, but total M&A value was still higher than in each of the years from 2010 to 2013. The value of M&A in the global chemicals industry rebounded to $72.4bn in 2018, up from $46.4bn in 2017.

The first quarter of 2018 was slow, although deal volume increased in each successive quarter in 2018, and deal values were also strong, with billion dollar-deals increasing in both quantity and value throughout the year.

Deloitte expects 2019 to be a challenging year, with growth in industrial production down and protectionism on the rise in many developed economies. However, the emergence of digitalisation is expected to transform the global chemicals industry and create additional M&A activity in the future.

“In 2019, we expect a modest decline in chemical industry M&A activity, but as demonstrated in the past, activity should still be strong despite global uncertainty,” says Dan Schweller, Deloitte Global M&A leader for the chemicals and specialty materials sector. “Underlying conditions for a strong M&A market remain intact – ample cash on-hand for buyers, availability of relatively cheap credit, and the desire to increase ROI for investors.

“Protectionism and trade concerns are weighing heavily on companies and global regulators continue to heavily scrutinize deals,” he continued. “As a result, we may see hesitancy towards cross-border M&A deals. However, the equity market declined in the fourth quarter, which may make high deal valuations – a limiting factor for M&A in 2018 – more palatable to investors moving forward.”

Report: 2019 Global chemical industry mergers and acquisitions outlook

Roche secures Spark for $4.3bn

BY Richard Summerfield

Swiss healthcare company Roche has agreed to acquire US-based gene therapy specialist Spark Therapeutics for $4.3bn.

The deal will see Roche pay $114.50 per share in an all-cash transaction, a premium of approximately 122 percent to Spark Therapeutics’ closing price on 22 February 2019 and a premium of approximately 19 percent to the company’s 52 week high share price on 9 July 2018. The deal is expected to close in the second quarter of 2019.

“Spark Therapeutics’ proven expertise in the entire gene therapy value chain may offer important new opportunities for the treatment of serious diseases,” said Severin Schwan, chief executive of Roche. “In particular, Spark Therapeutics’ haemophilia A programme could become a new therapeutic option for people living with this disease. We are also excited to continue the investments in Spark Therapeutics’ broad product portfolio and commitment to Philadelphia as a center of excellence.”

“As the only biotechnology company that has successfully commercialised a gene therapy for a genetic disease in the US, we have built unmatched competencies in the discovery, development and delivery of genetic medicines. But the needs of patients and families living with genetic diseases are immediate and their needs vast,” said Jeffrey D. Marrazzo, chief executive of Spark Therapeutics. “With its worldwide reach and extensive resources, Roche will help us accelerate the development of more gene therapies for more patients for more diseases and further expedite our vision of a world where no life is limited by genetic disease.”

For Roche, the addition of Spark will be critical as it loses the patent of its $21bn a year trio of cancer medicines Rituxan, Herceptin and Avastin. Going forward, biosimilars of these treatments will provide stiff competition for the company in both Europe and North America. The deal is also part of Roche’s pivot away from cancer treatments, an area in which the company has been the world’s largest player.

Loss-making Spark, the only biotech that has successfully commercialised a gene therapy for a genetic disease in the US, had $51.6m in revenue in the first nine months of 2018 from Luxturna and also had income from a deal with Pfizer, which it is partnering with on another gene therapy for haemophilia B.

News: Roche 'steps up' for gene therapy with $4.3 billion Spark bet

US tech CFOs anxious over cyber security and economy, says new survey

BY Fraser Tennant

Cyber security and economic growth are the top concerns of US tech firms in 2019, according to a BDO survey published this week.

The  firm’s ‘2019 Technology Outlook Survey’, which features the views of 100 chief financial officers (CFOs), states that data privacy remains at the centre of the tech sector’s worries, with 87 percent of CFOs expressing a high or moderate concern about the issue. It also ranked third in the list of companies’ biggest business priorities for 2019, after scaling the business (37 percent) and product or service innovation (34 percent).

“Tech companies can expect to face many challenges in the year ahead,” says Aftab Jamil, assurance partner and global leader of BDO’s technology practice. “These include data breaches and cyber attacks, as well as continued regulatory uncertainty concerning trade and other policies.”

Additional findings from the BDO survey include the difficulties tech firms are having recruiting and retaining talent, adding new products or services, and pursuing mergers and acquisitions.

According to the CFOs surveyed, the implementation of the EU’s General Data Protection Regulation (GDPR) and the California Data Privacy Act in 2018 have further reinforced issues tech firms are facing.

“Regulatory bodies will continue to demand greater levels of accountability and transparency, and the race toward innovation will continue to speed up,” continues Mr Jamil. “As a result, tech companies will need to re-evaluate and fortify their operational and financial management in order to respond swiftly and nimbly.”

Despite these challenges, survey respondents expressed optimism about their business operations, with 84 percent expecting an increase in total revenue in 2019, at an average net change of 12.7 percent, and 62 percent anticipating an increase in their number of employees.

Respondents are also optimistic as to the impact of the new US tax reform law which is expected to have in impact this year. While 68 percent harbour high or moderate concerns about tax changes overall, 75 percent expect the reforms to be “favourable”, with 9 percent expecting them to be it to be “very favourable”.

“US tax reform will continue to have ripple effects on tech companies – and across all industries – for years to come,” said David Yasukochi, tax office managing partner and co-leader of BDO’s technology practice. “Tech companies will have to ensure constantly redefine their tax strategy to manage future risks and opportunities that come with the tech industry’s continued impressive growth.”

 Report: 2019 Technology Outlook Survey