December 19, 2018 – Glansaol and seven affiliated Debtors filed for Chapter 11 protection [Docket No. 1] with the U.S. Bankruptcy Court in the Southern District of New York, lead case number 18-14103. The Debtors’ Petition provided detail as to the proposed going convern sale to to AS Beauty (described further below) notably as to a cash purchase price of $16.218 million (plus the assumption of certain liabilities), and noted that debtor-in-possession (“DIP”) financing, with Sun Trust Bank as administrative agent and collateral agent, had also been lined up.
The Company, a recently formed beauty and personal care platform that Warburg Pincus launched in October 2015 in partnership with Alan Ennis, former President and CEO of Revlon, is represented by Brian S. Lennon of Willkie Farr & Gallagher. Further board-authorized appointments include Emerald Capital as financial advisor and Omni Management Group as claims agent.
Glansaol’s petition notes between 200 and 999 creditors; estimated assets between $10 million and $50 million; and estimated liabilities between $10 million and $50 million. Documents filed with the Court list the Company’s three largest unsecured creditors as (i) B Kolormakeup & Skincare Srl ($575,648.21, trade debt claim), (ii) Chromavis Spa ($545,419.29, trade debt claim) and (iii) Advanced Distribution Systems ($392,929.93, trade debt claim).
In a press release
announcing its filing for Chapter 11 protection, Glansaol advised that it was simultaneously filing a motion seeking Court authority to sell substantially all of its assets to AS Beauty as a going concern. The sale to AS Beauty, which is supported by the Company’s existing lenders, is “designed to preserve the strength of the Company’s core businesses for the benefit of the Company’s economic stakeholders.”
“The Board and management team have thoroughly assessed all of our strategic options and are confident that the proposed sale process represents the best path forward for the Company,” said Nancy Bernardini, the Company’s chief executive officer. “We are pleased to have entered into an asset sale agreement with AS Beauty and are excited for the Company’s future.”
Events Leading up to the Chapter 11 Filing
In a declaration in support of the Chapter 11 filing [Docket No. 4], Nancy Bernardini, the Company’s chief executive officer, explained that the Debtors were formed in October 2015 to serve as a platform company to acquire, integrate, and cultivate a portfolio of prestige beauty brands diversified across segments, channels and geographies. The strategy was put into practice in late 2016 and early 2017 when the Debtors acquired a trio of rising prestige beauty companies – Laura Geller, Julep, and Clark’s Botanicals.
Despite the popularity of the Debtors’ underlying brands and management’s best efforts to stabilize operations, “the Debtors’ business performance has significantly declined in recent years.” Bernardini cited several factors that contributed to the Debtors’ recent struggles.
First, the Debtors faced the same macro retail market trends that impacted other consumer products distributors over the last several years, including a general shift away from brick-and-mortar shopping, evolving consumer demographics, and changing trends. Because a substantial portion of the Debtors’ profits derived from broadcast shopping networks and wholesale distribution, the Debtors have felt the pain of their most significant customers ? large retailers and QVC ? which, in turn, has had a detrimental effect on the bottom line. “Because the Debtors historically relied on their major customers’ projections of future demand, which ultimately proved overly optimistic, the Debtors have suffered through a steep and unanticipated cut back in orders. This issue is compounded by the fact that the Debtors’ customer base is highly concentrated: their top two customers account for over 60% of the Debtors’ total receivables. Similarly, Laura Geller’s top ten customers, alone, represent approximately 90% of the brand’s total sales,” Bernardini stated.
Second, the Debtors have been unable to replace key revenue generators due to: (a) the increasingly competitive industry landscape coinciding with the downturn in the brick and mortar retail sector; (b) the decline in broadcast shopping network sales; and (c) the downturn of the Company’s single-brand subscription business, which faced competition from new entrants that offer subscriptions covering a variety of brands. Third, the decline in sales saddled the Debtors with a significant oversupply of inventory, which forced the Debtors to sell goods at steep markdowns and destroy certain products, further tightening margins and draining liquidity. Fourth, the Debtors’ reduced revenue stream cannot sustain operations after accounting for the substantial amount of chargebacks issued by the Debtors’ customers, which are netted against ? and significantly reduce ? the Debtors’ accounts receivable. And fifth, the Debtors were never able to achieve significant cost savings related to shared services among their brands. “Upon the Debtors’ acquisitions of Laura Geller, Julep and Clark’s in 2016, the plan was to ultimately consolidate shared services, including supply chain, senior management, administrative support, human resources, information technology support, accounting, finance and legal services. The brands, however, were never fully integrated. Instead, the Company is saddled with a substantial legacy investment in a new ERP system, which was put into place ahead of cross-organizational efficiency initiatives and right-sizing functionality. Accordingly, the costs savings attributed to synergies, which had been a pillar of the Debtors’ original business model, were never realized,” Bernardini stated.
The Company’s decision to file these cases and pursue the sale was informed by several months of deliberations and negotiations with potential acquirers, investors, and the Company’s key stakeholders. “Although, prevailing industry-specific as well as economy-wide headwinds….limited the Company’s options out of court, the Company’s successful negotiations with AS Beauty and support from SunTrust Bank, the lender under the Debtors’ prepetition secured revolving credit facility and proposed debtor-in-possession financing facility, provides a clear path to a value maximizing transaction and confirmable plan for the benefit of all of the Company’s stakeholders,” she wrote.
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