How acquisition of apparel company Hop Lun is an example of Platinum Equity’s ability to ‘win over’ founder-owned companies

Platinum Equity’s decision to acquire a majority interest in Hop Lun, a global apparel company, is noteworthy for many reasons.

Hop Lun is Platinum Equity’s fourth platform deal and first foray into the apparel business in Asia.

It’s currently the fourth apparel company in Platinum Equity’s portfolio.

The acquisition is also another instance of Platinum Equity building a solid working relationship with a founder-owned business. Current Platinum Equity portfolio companies Game Taco, Mad Engine, Arrow International, L&R Distributors and Centerfield were acquired from company founders.

“Hop Lun is a really great example of Platinum’s tenacity and our ability to win over sellers in terms of just being a firm that really values the human side of our business equation,” Platinum Equity Partner Jacob Kotzubei said recently. “We’re able to present a softer, gentler firm.”

Founded by Erik Ryd in 1992 and headquartered in Hong Kong, Hop Lun is one of the world’s notable designers and manufacturers of undergarments and swimwear in the U.S. and Europe. The Hop Lun investment is led by Platinum Equity’s Singapore office, which Kotzubei oversees.

“There are many founder or family-owned businesses in Asia facing succession or other issues that need a partner who can not only provide capital, but also operational expertise,” said Kotzubei. “They are looking to create additional value while also protecting their legacy and setting up their business for a new stage of growth. We have a lot of experience in those situations and are excited to work alongside Erik and the Hop Lun team on the next step in their journey.”

Ryd will retain a significant stake in Hop Lun and will continue to help lead the business.

“I am proud of everything we have built over the last three decades and I am confident Platinum is the perfect partner for our next phase of growth,” Ryd said. “Platinum’s operations expertise is well suited to help us navigate the increasing complexity of the apparel business and take advantage of the sector’s continued consolidation.”

Kotzubei, Platinum Equity Managing Director Matt Louie and Senior Vice President Tae Ho Whang were asked recently for further thoughts on the acquisition.

(Answers have been edited for length and clarity).

Q: What was the key factor in landing this deal during a year of diminished M&A activity?

Kotzubei: Erik is somebody that we got to know pre-COVID. We talked about a partnership before COVID hit. COVID is something that has had a big impact on his business because he relies on a large number of employees to make products, and COVID impacted factories and the ability for people to come to work.

Kotzubei: After an initial acquisition attempt, we stayed in touch. Erik was very transparent with us, and we watched his business as it developed. We saw him adapt and make changes and really share the cultural values and the communication values that we have. And when it came time, as we were coming out of COVID and he began to reconsider selling his business, we were at the very top of his list. It was more than about how many dollars he was going to get. That was important, but it wasn’t the only variable.

Q: What is Hop Lun’s reputation in the apparel industry?

Whang: Hop Lun is one of the world’s largest original design manufacturers of intimate apparel. In a very fragmented market, they’re a top performer in terms of volume for bra solutions. They also stand out as being unique for their ability to fulfill solutions for all types of customers – from leading supermarket/hypermarkets, specialty and general fashion retailers, digitally centered brands. This is a testament to Hop Lun’s breadth of expertise in design, manufacturing and overall supply chain management that is hard to replicate.

Q: How was the deal sourced?

Whang: There was a prior sales process led by Goldman Sachs several years ago, but I would say what was unique about that was even prior to the process, Erik had met us in the U.S. and in Asia, laying the foundation to cultivate what is now a three-year relationship. Both L.A. and Singapore deal team members engaged on the deal, and our relationship developed to a point that we were able to closely track the business and exchange ideas with Erik on a monthly basis for all of 2020 and 2021.

Whang: The sale process launched in February; first-round bids were in by March. Then Russia invaded Ukraine. That created a lot of anxiety around inflation and there still is ongoing fears about a slowdown in the economy. That significantly reduced the playing field. I firmly believe the differentiator was how we saw this business and Erik persevering through that challenging environment the past 3 years – not just with the pandemic and the shutdowns – but really in that post-COVID environment, they continued to manage costs well, continued to grow revenue and transform the business to be more resilient.

Q: How does this transaction help us with future M&A opportunities?

Louie: There are so many family-driven businesses that are prevalent in Asia that may have succession issues over time. I think the word is really getting out to folks in the Asian region that Platinum can bring a lot to the table around professionalization, around taking the business to the next level. Erik really embraced Platinum’s approach to our operational improvement and M&A, and when that happens, that’s a recipe for success. There are a number of families in Asia that may think they need capital, but that’s all they need, and they really don’t want help. That’s not the right deal for us because we pride ourselves on what we can be. We’re more than just capital.

Q: What are key parts of the investment thesis?

Whang: A significant large part of this business goes to supermarkets, and it’s a product category we know is resilient. Beyond that, the management has also proven to be able to grow and come back stronger after dips and there’s a long history of just delivering above industry growth. As we think about the path forward, we think that in an industry which remains fragmented, it will eventually favor scaled players and give Hop Lun an opportunity to accelerate market share in the industry with our expertise.

Q: Any synergies with similar companies (Elevate Textiles, Mad Engine, SVP Worldwide) in our portfolio?

Whang: We’ve gotten some referrals from Mad Engine about opportunities we should be looking at, but at its core and where we’re going to do well, is this business is an original design manufacturer. With the right M&A on the brand side, I think this business could be exciting. Back to Mad Engine, while Erik was in L.A. during the diligence process, he had a chance to visit Mad Engine in (Orange County, Calif) to exchange ideas. It was another facet of our value proposition to Eric. It helped him conceptualize how he could go bigger in the U.S.

Whang: Elevate Textiles was very helpful during due diligence. There’s a small, but consistent, upstream relationship. I think we’re trying to see if we can widen that. It shows the attributes of Elevate; its management was aware of this business.

Q: Does Hop Lun have a compelling ESG story?

Whang: ESG is critical. And it is a major concern throughout the apparel industry. Top brands can’t afford bad press or accidents around worker conditions, living wages or bad governance. At the same time, many of these brands are not in the business of manufacturing so they have a growing reliance on the likes of Hop Lun to ensure they are being responsible throughout the supply chain. One of the big focal points during diligence was the impact of fast fashion on retail. While it will have potential impacts on the industry’s demand side over time, we also believe that this will have a strong impact to the supply side and with this evolving theme, scaled, responsible suppliers such as Hop Lun will emerge as more mission critical to its customers throughout our investment period.

Louie: One of the key things from ESG is the use of sustainable fabrics. Hop Lun is increasingly exploring, collaborating with the brand owners to discover ways to use more sustainable products. We must look at brands or add-ons that have an innovative approach in the use of sustainable fabrics, in post-consumer recyclable materials.