In this exclusive extract from Ragtrader's November print edition, Assia Benmedjdoub tells the story of how Kookai Australia went global.
It took a 15 minute dinner to close the deal.
Kookai managing director Rob Cromb remembers that evening well. It started with a phone call almost a year earlier.
"In April 2016, were told by the owners of Kookai that the business was going up for sale," he says. "They wanted a very quick transaction. They wanted it sold by July. We got everyone ready. July came and went. There was no noise from Paris."
The offer had come from executives at Vivarte, a Paris-based fashion group in the midst of a dramatic reconstruction plan. Just two years prior to the sale, it had reached an agreement with 12 lenders on a program to wipe out $2.75 billion of debt.
Kookai was part of a major brand sell-off.
"We got to November and there was another phone call," Cromb continues. "This time, the business needed to be sold by December. In the end, we earmarked February as the right time to go over to Paris and try to finalise negotiations."
At the turn of the new year, Cromb took his chairman and an advisory board member to France. The president of Vivarte had invited them to talk business over dinner; as it transpired, he was joined by over 10 lawyers.
"We were a bit nervous about what was to transpire," Cromb laughs. "One of the key things about that evening was the key points of the deal were done in 15 minutes. He was managing 22 brands under the group and we're solely focused on one, so we had a fairly strong idea of how to approach the deal."
While Cromb declines to disclose commercial details, he does reveal a key point centred around liability for short-term earnings.
"We felt we weren't going to be held responsible for the business over the ensuing six months from the date of settlement. I wanted any losses or profits over that course to be deducted or added to the price. I can't control what they've committed to in that period.
"They insisted on a fixed price and so in removing that flexibility, I went back with a price that was fairly aggressive. Ironically, they agreed. In 15 minutes, pretty much all of the key terms we put forward were agreed on."
The deal gave Cromb and his business partner Danielle Vagner an additional 500 employees and 190 global stores, transforming it into a $250 million global empire.
Cromb reveals there were two other bidders in the wings, a China-based conglomerate and a local family-run business. In the end, it was experience and a commitment to French employees that won out.
"We were a success," Vagner says simply, noting Kookai Australia will celebrate its 25th anniversary this year. "In the last few years, the brand Kookai has actually folded in many countries. We were one of the few that hadn't. It used to be in around 43 countries, today it's in probably around 18."
Kookai CEO Laurence Benat, who has been with the business since 2015, is already kick starting a turnaround. This year, the business reversed a trend which has seen it reduce to 1/8th of its former glory. It returned to profitability.
"Laurence has only been there for a short time but 90% of the turnaround is due to her. Paris does a lot of things now that are very good,” Cromb says. “They have a supply chain that can respond in two weeks and they've done that in just the last 12 months.
"Kookai in its infancy was at the forefront of what Zara is doing today. They would deliver daily to their warehouse and all the countries around the world would essentially fly in and choose product. They were very quick to market.
"They're now far more reactive and trading in-season which is something that for the last 15 years, they moved completely away from. Paris is working more closely with us."
The French now produce nine "books" a year with new product dropping every two weeks. In Australia, new deliveries land into stores weekly with a maximum 1.5 month ranging cycle.
The company owns its own factories, employing 900 workers across Fiji and Sri Lanka.
"We can change things two weeks in advance," Vagner says. "We don't have warehouses so we manufacture from the factory, it goes to the airport and it's delivered straight to store. France is already moving towards this rapidly."
Cromb admits profitability for this regional supply chain is limited, with plans to consolidate at least a portion of it.
"Because we've merged the companies and doubled the economies of scale, we can reach out to factories that were out of our reach before. It means we're able to access quality factories that didn't look at us before because our business was too small. We're keen to engineer that outcome over the next 12 to 18 months."
Cromb is reluctant to overhaul front-end processes in the short term, with a focus on merging infrastructure such as accounting and eCommerce instead.
The structural investment, along with the acquisition, has been funded through a mix of debt and equity. This could also change.
"If Kookai does get traction globally, we may need more horsepower than we've got ourselves," Cromb says.
"Our performance in the US, UK and Europe will determine how our future is funded. We will have private equity we can raise or if we feel there's a big opportunity, going public is a prospect we have to consider.
"If we do, corporate governance is really critical for the way we structure. Having grown from a zero to $250 million business, you're introduced to a level of governance and regulation being a global business.
“There are a lot of different structures we have to operate in. Even simple things like transfer pricing will effect the way a company governs and the way it runs."
Despite these growing pains, Cromb says sitting on the sidelines is simply not an option.
"Effectively, we had to purchase the global business,” he shrugs. “Being a licensee, there's only so much value you can attribute to the business. Look at Ralph Lauren. Whilst they built a very successful platform for the US business, effectively the [local] license was taken away at the end of the day for a very small price. We knew the risk to our business.
"If we weren't going to be taken over by Paris, the value in the license was not going to be significant. Could we afford to do it, could we afford not to do it? To buy the global IP, the trademarks, to own territories, to be in control, it was a no brainer for us.
"At what it's going to cost us, it's probably going to add two to three times the value to the company through this transaction.
“Having 25 years in this business, we have that in our favour. We know Kookai better than anyone else."