Gilden Activewear Inc. Gets Active in the M&A Space

Gildan Activewear Inc. (TSX:GIL)(NYSE:GIL), a leading manufacturer and marketer of household “basics,” has recently added to its portfolio of brands by agreeing to purchase American Apparel out of Chapter 11 bankruptcy. What does this mean for long-term investors?

| More on:

Gildan Activewear Inc. (TSX:GIL)(NYSE:GIL), a leading manufacturer and marketer of household “basics,” has recently added to its portfolio of brands by agreeing to purchase American Apparel out of Chapter 11 bankruptcy. The company has agreed to purchase only American Apparel’s intellectual property rights for US$66 million, opting not to purchase the rights to American Apparel’s 200 retail stores. This is American Apparel’s second bankruptcy in less than two years, and it appears this may be the end of the road for a once-iconic brand.

I will discuss what this purchase means for long-term investors wanting exposure to the manufacturing and textiles sector.

Teen fashion retail struggling, but Gildan has a formula that works

Retailers targeting the teen segment continue to struggle; American Apparel is a retailer focusing on the teen segment that has bitten the dust. The uniqueness of the product line combined with the company’s often controversial but successful marketing scheme has made American Apparel an attractive target for Gildan.

Gildan has focused in recent years on bolstering its printwear channel, announcing strong growth of approximately 12% in this category at year end 2015 compared to a year earlier. This growth is anticipated to be complemented nicely by the company’s purchase of American Apparel, whose strength came primarily from retailing printwear and basics.

Gildan has improved operating margins in recent years by moving production around the world, and by effectively integrating existing brands into its portfolio. Last year, the company acquired and successfully integrated Anvil and Comfort Colors into its portfolio.

Gildan’s business model relies on the company’s ability to exist in the “boring” product segments (focusing primarily on products such as underwear and socks) and operate more efficiently than its competitors. Many analysts have viewed this potential acquisition as being very positive for the stock price. The stock moved 5% higher on the news Monday and closed marginally higher Tuesday with the market reflecting analyst sentiment.

The deal is not yet done, as this is still pending court approval, and is still technically considered to be only a “bid,” although the market seems to believe there is little chance the deal will fall through.

Gildan has a stable and growing dividend with a small yield around 1%, and the board has initiated a normal course issuer bid to repurchase up to 5% of the company’s shares to return additional capital to shareholders. For a boring company with a boring dividend and share-repurchase program, things don’t look too bad for a long-term investor seeking a safe opportunity. After all, those investors who bought this stock five years ago have realized stock appreciation of 163%. That’s not bad at all.

 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Chris MacDonald has no position in any stocks mentioned.

More on Investing

Modern buildings in business district
Bank Stocks

TD and CIBC Stock: 2 Top Banks to Buy for Big Yields

TD Bank (TSX:TD)(NYSE:TD) stock is a dividend juggernaut that's a must-buy for its cheap yield.

Read more »

Gold bars
Metals and Mining Stocks

Gold Stocks That Could Soar if the Fed Pauses Rate Hikes

In choppy waters, two gold heavyweights look too good to pass up right now given their lowered entry points, dividend…

Read more »

Clean energy
Energy Stocks

Better Buy: Renewable Energy or Uranium Stocks?

The world is shifting towards clean energy sources, creating investment opportunities in the renewables sector. What's a better bet: environmental…

Read more »

retirees and finances
Energy Stocks

These 3 Stocks Can Help Make You Richer by Retirement

Future retirees can be rich in their sunset years with the help of three distinguished dividend-payers on the TSX.

Read more »

A worker uses the cloud for paperless work. tech
Tech Stocks

Why I Think Constellation Software (TSX:CSU) Stock Has Market-Beating Potential

Constellation Software (TSX:CSU) could outperform the market over the next few years.

Read more »

data analytics, chart and graph icons with female hands typing on laptop in background
Investing

Got $5,000? These Are 2 of the Best TSX Growth Stocks to Buy Right Now

Canadian investors with some extra cash on hand should look to snatch up TSX growth stocks like goeasy Ltd. (TSX:GSY)…

Read more »

Senior Couple Walking With Pet Bulldog In Countryside
Dividend Stocks

Retirees: 2 On-Sale TSX Dividend Stocks to Buy Now for Passive Income

These top TSX dividend stocks now offer 6% yields.

Read more »

Electric car being charged
Investing

Forget Rivian: This Canadian EV Stock Is Cheaper and Safer

If you're still tempted to buy EV stocks, Magna International (TSX:MG) is probably safer than Rivian (NASDAQ:RIVN).

Read more »