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April 05, 2007

Endeavor's American Apparel Purchase To Proceed

Endeavor Acquisition Corporation (EDA) announced that the deal to purchase American Apparel (AA) will proceed. AA met the requirement that 2006 earnings before interest, taxes, depreciation and amortization (EBITDA) be at least $30 million. An additional requirement that 2007 budgeted EBITDA reach $50 million was waived. The press release says that AA did not have adequate access to financing to open as many stores as projected, leaving 2007 EBITDA to be budgeted at around $40 million. The press release also noted that AA same-store sales for 1Q07 were up 17%. EDA management expressed great confidence in AA and noted that when the deal closes and financing, including equity, becomes available, AA's growth will remain on track.

I'll have more on this soon but I think the takeaway on the Street will be positive as the same-store sales number will trump the reduction in 2007 EBITDA growth. Additionally, even without all of the new store openings, 2007 EBITDA is still projected to rise 33%.

I am still long EDA across the Northlake client base and believe that when I reset my spreadsheet the reach target of $18 will still be valid, but it might be delayed to 2008 instead of late 2007.

Posted by Steve Birenberg at April 5, 2007 09:28 AM in eda