Dive Brief:
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Digital Brands Group has turned to its investors to fund its months-old deal to buy women’s apparel brand Sundry and other activities. The direct-to-consumer retailer on Thursday said it had closed on a $10 million public offering.
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Digital Brands will use the proceeds to fund a portion of the cash purchase of Sundry, repay outstanding promissory notes, make payments under a settlement with the Harper & Jones apparel brand’s former owners and for general corporate purposes, according to a company press release.
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In January, Digital Brands announced a deal to buy Sundry for $34 million in cash plus $7.5 million in stock, but closing has been delayed for months. In October, the deal was slashed to $7.5 million in cash, $1 million in equity and $5.5 million in debt to the sellers.
Dive Insight:
Earlier this year, and barely a year after going public, Digital Brands was warning that it might have to file for bankruptcy. Even before that the company made a couple of appearances on S&P Global Market Intelligence’s list of most vulnerable public retail companies.
But acquisitions are at the heart of its model, and the company has doggedly pursued its Sundry deal amid its own financial woes, announcing in June that a closing date was nigh.
Digital Brands already owns Stateside, Bailey 44 and other apparel brands, and it acquired Harper & Jones around the time of its IPO. The company recently opened an online marketplace dubbed Bailey Shop featuring its brands.
“We believe our business gets exponentially stronger every time we add a brand, and we provide the customer with more options and styles across more brands,” CEO Hil Davis told analysts during a call last month. “And the deal flow we are seeing is higher than we've ever seen given this current market. So we believe that we'll continue to grow our portfolio at significant scale over the next 12 to 18 months.”
That may soon, at long last, include Sundry, though Digital Brands more than once has warned the deal may never go through. A Bailey 44 supplier in April had tried to throw some cold water on the transaction, asking to be paid on a longstanding bill before Digital Brands spent money on expanding its portfolio.
In its most recent quarter, net revenue rose 58.3% to $3.4 million and losses narrowed to $4.9 million from $8.9 million a year ago, though gross margin contracted to 48.3% from 55.9%.
“We're excited about the Sundry acquisition and continue to scale, whether it's in the private or public world, I think we figured it out,” Davis said in November. “And I think that's why we've got a lot of interest in how to platform these companies, strip out cost, both just from an OpEx perspective, but also from a marketing DTC, lowering the [customer acquisition cost] significantly, driving [lifetime value], which is really critical in the world we're in today.”
