We all want to own a piece of high fashion…

By Tyler Davis [November 28th, 2012] 


Recent legislation and the current trend for powerful fashion houses could make that just a little more possible. Earlier this year Michael Kors Holdings, Brunello Cuccinelli SpA, and most recently Tumi have all gone public. Michael Kors launched its IPO in December of 2011 raising just under $950 million, and has since seen roughly a 70% increase in stock price.

To generate capital and expand the organization, companies will make an initial public offering (IPO), selling shares of the company on a public stock market. Although there are many publicly held retailers and fashion houses, there is an increase in the trend. In fashion, going public seems to be the new black. In June of 2011, Prada SpA when public in Hong Kong and Ferrgamo went public in Milan.

Fashion has always been a function of individuals who want to change the market. Although giants like VF Corp may dominate the public sector, only a few luxury fashion houses have tested these waters.

With the influx of capital, there are many legal requirements and restrictions. Most importantly, is the fiduciary duty of the directors and managers to the shareholders to increase share value. Additionally, when a company is publicly traded, it must adhere to strict government oversight and regulations. Sarbanes-Oxley, a congressional act of 2002 legally requires public companies to disclose legitimate and verified accounting records, both attorneys and accountants must maintain strict compliance with the regulations. In-house counsel face increased challenges and often must expand their department to meet these securities reporting regulations.

However, being a public company is not for every brand. In March, Kenneth Cole announced his plans to take the company private and Bank of America was appointed financial advisor for a bid that values the Kenneth Cole Productions, Inc. at approximately $280 million. Mr. Cole owns 47% of the common stock of Kenneth Cole Productions, Inc. Common stock is a type or class of stock that allows for owners to vote and in some cases owners will be paid out dividends.

Although taking the company off the public market lessens the restrictions for management of the company, it also restricts the funding. Kenneth Cole will enjoy a little more room to pursue alternative initiatives and take the company in any direction management sees fit.

The United States House of Representatives has passed a bill easing federal security regulations, in effect, making it substantially easier for small companies and entrepreneurs to go public. Smaller fashion brands and collections often face challenges generating capital and cultivating investors, but this loosening of SEC Regulations could ease the source of new capital.

Going public, or privatizing is something that must be considered in regard to the needs of each individual brand. Knowledgeable corporate attorneys should be consulted for all matters of entity inception, whether Limited Liability Company, Corporation with S or C status, and closely-held versus public corporations.

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