By Abigail Summerville
NEW YORK, June 23 (Reuters) – In a deal that attracted little interest from Wall Street, the owner of popular yoga clothing maker Alo agreed to sell its wholesale T-shirt division Bella+Canvas last month.
Alo and its founders have not talked about the brand’s future, but equities analysts and retail M&A advisers argue the deal primes Alo for a future public offering or sale as industry pioneer Lululemon struggles and new competitors circle.
The sale of Bella+Canvas, which has not closed yet, would give founders Danny Harris and Marco DeGeorge more flexibility and options for Alo, creating a focused, high-end athleisurewear business in an increasingly competitive market, said Neil Saunders, managing director at research firm GlobalData Retail.
“Alo is a mature business, so it’s at the stage where you generally do something with it. You IPO it, you sell it off, you launch something else alongside it to grow another complementary area to Alo,” Saunders said.
Harris and DeGeorge, the publicity-shy billionaires behind Alo, have not publicly talked about whether they are considering a sale or public offering. Bella+Canvas’s announcement of its sale did not disclose its affiliation to Alo and was no longer available on its website shortly after Reuters emailed asking about it last month.
Alo and Bella+Canvas did not return requests for comment. A spokesperson for SanMar, which agreed to buy Bella+Canvas for an undisclosed sum, said there have been no changes since the May 18 announcement that terms for a deal had been reached.
CELEBRITY APPEAL
Harris and DeGeorge grew Bella+Canvas into one of the largest makers of T-shirts and apparel for wholesalers in the U.S. after founding it in 1992 out of a garage. It is the lesser-known, but longtime reliable revenue stream, of Alo Yoga’s parent company Color Image Apparel Inc.
Alo, short for air, land and ocean, grew into a yoga and sportswear powerhouse since the duo launched it almost 20 years ago in Los Angeles. Celebrities like Taylor Swift, Bella Hadid and Hailey Bieber have been spotted running errands and doing pilates in Alo gear.
As its popularity grew, so did its sales and earnings, which led it to eventually overtake Bella+Canvas as the bigger business, a person familiar with the company said.
By shedding Bella+Canvas, Alo becomes an easier company for potential buyers or investors to understand and value, making it a far simpler sale or IPO process, a dozen retail analysts, M&A advisers and investors said.
If it decides to sell or go public, it would not be the first time the company has solicited outside capital. It held talks with several private equity firms and other potential investors in 2023 as it sought its first investment partner in a deal that could have valued it at roughly $10 billion, Reuters reported at the time.
The feedback from Wall Street: Bella+Canvas didn’t add much value and only complicated the company’s story for investors, sources said at the time. No deal was announced.
“It makes sense to clean up the model and financials for investors,” said Cristina Fernández, a managing director and senior research analyst at Telsey Advisory Group.
LEGGINGS TO LUXURY
Since its founding in 2007 as a yoga clothing line, Alo has expanded into skincare products, footwear, beauty and wellness. It has been increasingly targeting the luxury market, launching a $3,600 leather duffel bag last year.
It competes head-to-head with industry leader Lululemon, as well as several younger athleisure brands pushing for dominance, including Vuori, Fabletics and Gymshark. Those three brands have been considering initial public offerings in recent years, according to news reports.
Sales of yoga pants and sweatsuits surged during the COVID-19 pandemic as consumers sought comfier clothes while working from home. New competitors entered the market just as corporate bosses started requiring more employees to return to the office, shifting consumer tastes away from loungewear.
“[Athleisure] certainly peaked during the pandemic. Since then, it has lost a little bit of its casualwear share and a lot of that is due to the huge resurgence we’ve seen in denim,” said Sky Canaves, a principal analyst at Emarketer. “More broadly we’re seeing a period of normalization in athleisure wear growth in the U.S.”
The shift has been felt at Lululemon where the company’s weak performance over several quarters prompted an acrimonious fight with founder Chip Wilson. Lululemon’s stock has dropped 50% year-to-date, giving it a market valuation of about $12 billion.
Wilson argued that the company had “lost its cool” and blamed the board for the falling share prices, while the board accused Wilson of outdated perspectives and attacks that damaged the brand. The two sides reached a settlement last month.
Founder-owned companies typically bring in institutional investors before an IPO to set a benchmark valuation to later justify what they want from public investors. But they can also list without outside capital.
And Alo’s co-founders appear to have a clear sense of what type of capital they want: In the Bella+Canvas deal announcement, DeGeorge said, “It was paramount to my partner and me that Bella+Canvas joins a privately held, family-owned company rather than private equity.”
Harris and DeGeorge own Color Image Apparel outright, having grown the company without any outside institutional investors. Forbes estimates they are worth $3.7 billion each.
Alo currently has more than 150 stores globally, with yoga studios offering classes in some locations and an invite-only gym at its Beverly Hills headquarters where celebrities train in the company’s best-selling $100-plus leggings.
“Alo is a little more exclusive and higher end with stronger ties to luxury that really speak to the affluent or highly aspirational consumer,” Canaves said. “Their most recent campaign was with a super yacht in the French Riviera.”
(Reporting by Abigail Summerville in New York. Editing by Dawn Kopecki and Deepa Babington)
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