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The apparel retailer has hired M3 and Kirkland & Ellis to advise it on discussions with lenders

Apparel retailer Express is preparing for a debt restructuring that could include filing for bankruptcy within weeks, according to people with knowledge of the matter.

The Ohio-based retailer known for its affordable office wear has hired restructuring adviser M3 and law firm Kirkland & Ellis to consider how to restructure nearly $280 million of debt amid declining sales, said the people.

Publicly traded Express is still trying to avoid filing for bankruptcy by restructuring debt outside of chapter 11, the people said. Whether that is successful will depend on its lenders agreeing to provide more liquidity or loosening repayment options, the people said.

Express’s ability to avoid bankruptcy also hinges on whether vendors are willing to keep shipping goods without tightening payment schedules, the people said.

A representative for M3 declined to comment. Representatives for Express and Kirkland & Ellis didn’t immediately respond to requests seeking comment.

Express, which operates more than 600 retail and outlet stores, has said the business has struggled because of higher interest rates, slower store traffic, lower consumer spending and increasing competition from other retailers selling similar clothing at a deep discount. Its inventory also isn’t in line with what customers demand, the company has said.

The company brought on new Chief Executive Stewart Glendinning in September to help turn around the business. Glendinning said on a recent earnings call that the company would try to improve liquidity by discounting merchandise.

The retailer also has been trying to stem its cash burn by closing stores. It shut down roughly 100 stores in 2022.

The retailer survived the Covid-19 pandemic by taking on a new loan and raising funds in the equity market during the meme stock mania of 2021.

Express recorded roughly $98 million in losses before interest, taxes, interest and depreciation for the first three quarters of 2023.

Express had $34.6 million in cash at the end of the third quarter, down from $65.6 million in January 2023, according to company filings. It had $21.7 million available under its revolving credit line at the third-quarter end.

The company earlier said it has hired advisers to help review its business model.

A slowdown set in last year that has kept shares well below their listing price

Elton John, Journey and The Darkness all had hit songs about belief. A resonance with its signed artists led French music label Believe to the stock market in 2021. Yet its disappointing performance ever since has left early investors with a headache.

Monday’s announcement of a €15 a share cash buyout offer from a consortium led by founder and chief executive Denis Ladegaillerie and a 44 per cent undisturbed premium might then play well. Though this appears a case of him selling high and buying low.

The way people listen to music today has inverted the previous business model. Streaming services such as Spotify have helped shift some bargaining power to artists. Believe has capitalised on this trend, focusing on smaller artists and digital-only distribution. With 1.3m artists signed, Believe is in effect a bet on the structural shift to streaming and artist control. But despite some fast growth during the pandemic, a slowdown set in last year that has kept shares well below their listing price.

Ladegaillerie has teamed up with private equity group TCV. Together, they already own more than half the shares. Sweden’s EQT will help complete the buyout, taking Believe private at a value of €1.5bn. Altogether, the three have agreements representing about 75 per cent of the share capital. This suffices for a mandatory offer. Any remaining minority shareholders could be squeezed out. 

They may not be so happy with the price. The €15 offer is well below the €19.5 IPO price. True, the pace of its pre-acquisition expansion last year should slow to half the 32 per cent recorded in 2022. Digital music sales at Universal Music Group also slowed last year to 4.5 per cent, according to Visible Alpha, but from a much larger base.

The scale of its larger listed rivals makes valuation comparisons tricky. On a forward EV/ebitda basis the consortium has offered a 20 times multiple, in line with UMG and above the 15 times that Warner Music trades on. Its estimated 2024 free cash flow is just €25mn, a small fraction of those of its rivals.

An EV/sales multiple comparison paints the offer less generously, at about 1.4 times versus 4.5 times for UMG and 3.4 times for Warner Music. The buyers could have offered more to minorities, especially those fans that bought into Ladegaillerie’s original growth thesis. They will remember, should he return to the market with an encore.

Shareholders are getting a better, though hardly premium, deal

Tod’s customers prize its soft suede driving loafers. Its investors, however, may find the group’s latest proposition does not fit them so well.

The luxury shoemaker’s controlling shareholder, Italian entrepreneur Diego Della Valle, has teamed up with LVMH-backed private equity group L Catterton to take Tod’s private. The deal values Tod’s at €2bn including debt.

This is Della Valle’s second effort to delist Tod’s. An attempt in 2022 failed as shareholders judged his offer was too low. This time around, they are getting a better, though hardly premium, deal.

At €43 per share, L Catterton is offering a 17.6 per cent premium to Tod’s closing price on Friday. Though hardly a knockout, the shares have had a strong run recently. The premium to the three-month average share price looks more reasonable at 31 per cent.

However, one can argue that Tod’s share price does not fully reflect the group’s potential. The problem is that, through years of underperformance, it has worn its profitability thin. As such the buyout does not look too shabby at 20 times this year’s operating profit on S&P Capital IQ estimates.

But with more effort management might be able to double these earnings. That would bring them back to where they were a decade ago. Also on a multiple of sales, L Catterton’s offer looks underwhelming — just 1.7 times this year’s revenues. For reference, the buyout group recently floated Birkenstock at 5.5 times sales.

It may well be that L Catterton’s offer squeaks through. Turnarounds are easy to imagine but hard to pull off. Tod’s has attempted one for years. Its brand has lost some cachet, too. Its loafers, once de rigueur among business elites, get less attention than Loro Piana white-soled trainers. Shareholders may also be uncomfortably aware that, even if the offer fails, Della Valle will seek to delist the stock.

The entrepreneur himself would get a good deal. Under the terms of the agreement, he is a seller at €43 per share — albeit only of a 10.5 per cent stake. He will keep 54 per cent. LVMH, which owns 10 per cent of Tod’s, will also keep its stake.

In return, Della Valle gets the benefit of a partner with restructuring experience. And, should Tod’s then be sold on at a higher price, he would make a chunky profit on his remaining stake. Not so minority shareholders, probably irritated that they cannot follow in his footsteps.

Large study further boosts fast-evolving efforts to predict and prevent neurogenerative diseases

Blood proteins can predict dementia up to 15 years before clinical diagnosis, scientists using machine learning techniques have found, boosting research into how to prevent the debilitating condition that afflicts more than 55mn people worldwide.

The analysis, the largest of its kind to date, bolsters the findings of smaller studies suggesting certain proteins are “biomarkers” of susceptibility to Alzheimer’s and other neurodegenerative diseases, says the paper by scientists from China’s Fudan university and the UK’s Warwick university.

Effective screening methods for early identification of dementia risk would enable the use of drugs that slow or even reverse its onset, greatly decreasing the costs for health systems.

“We can quite reliably predict dementia 15 years before the diagnosis of the disease,” said Jianfeng Feng, the paper’s lead author and a computer science department professor at the University of Warwick. “We expect that our result will open up an avenue to develop new approaches to slow down the progression of the disease.”

The study, published in Nature Aging on Monday, used blood from more than 52,000 people collected and frozen between 2006 and 2010 by the UK Biobank genetic database. The researchers analysed the samples between April 2021 and February 2022.

More than 1,400 members of the research cohort developed dementia — and showed abnormal levels of some blood proteins. The researchers analysed 1,463 proteins using machine learning and identified 11 that proved to be accurate predictors of future dementia.

The combination of protein analysis and artificial intelligence techniques such as large-language models could provide a precise way of screening middle-aged and older people for dementia risk, Feng said. The results were “relatively ready” to be used in clinical practice by national health systems, he added.

The results come weeks after a study suggesting that a commercially available blood test showed high levels of accuracy in detecting Alzheimer’s, even in its early stages. The test examined concentrations of tau, a protein found in toxic tangles in the brains of Alzheimer’s sufferers.

The emergence of potential dementia diagnostics follows progress towards possible treatments. In October, pharmaceuticals companies Eisai and Eli Lilly unveiled research showing the benefits of using new Alzheimer’s drugs very early in the development of the disease.

The research published in Nature Aging further advanced “fantastic progress in the development of blood tests for Alzheimer’s”, said Dr Sheona Scales, director of research at the Alzheimer’s Research UK charity.

“This new study adds to the growing body of evidence that looking at levels of certain proteins in the blood of healthy people could accurately predict dementia, before symptoms develop.”

Further evaluation of the study’s predictive models would be required, scientists said. The “next steps” should be to “show how these protein markers perform in other cohorts that are less healthy and wealthy than UK Biobank [participants]”, said Charles Marshall, a professor of clinical neurology at Queen Mary University of London, who was not involved in the study.

Another important follow-up would be to explore if predictive accuracy could be further improved by combining the study’s protein marker analysis with other techniques such as blood tests and brain scans, Marshall added.

US biotech fundraising boom ends 2-year deal drought

Drug developers raised $6bn in January, helped by a rebound in merger activity

Biotech companies are rushing to raise money in US equity markets at the fastest rate since the peak of the mid-pandemic market boom.

Drug developers raised $6.2bn in equity capital markets in January, according to data from Jefferies. That marked the largest total since February 2021, the same month that the most popular tracker of biotech stocks hit its all-time high.

The funding surge marks a sharp turnaround after a two-year deal drought that forced many companies to cut jobs and shelve projects to save costs, and forced some out of business.

“There’s been a noticeable, dramatic improvement in sentiment among investors,” said Rahul Chaudhary, head of healthcare equity capital markets at Leerink Partners.

Fundraising has been encouraged by a rebound in stock prices, expectations that the Federal Reserve will soon start cutting interest rates, and a boom in mergers and acquisitions activity in the sector.

The closely followed SPDR S&P Biotech ETF tumbled almost two-thirds from its 2021 high, weighed down by rising interest rates and a backlash to pandemic-era over-optimism about new drugs.

The downturn — described as “an utter capitulation” by one asset manager in mid-2022 — was seized upon by hedge funds, many of which snapped up shares in biotech companies whose valuations tumbled as interest rates began to climb.

The SPDR biotech ETF has since rebounded about 40 per cent since late October as investors bet that interest rates had peaked.

Jesse Mark, head of equity capital markets at Jefferies, said the most notable shift was an increase in “opportunistic” deals from companies whose fundraising was not linked to encouraging drug trial data or other scientific milestones.

“In two years of challenging markets, most companies were relying on catalysts to raise capital,” said Mark. Now, he added, “broader investor interest created a window for opportunistic issuance”.

The bulk of the recent fundraising, $5.6bn, was raised by already listed companies, but initial public offerings have also been picking up pace, and the strong performance of recent deals was expected to encourage a further increase.

“There’s a good backlog of biotechs who didn’t go public over the past year or so who are sharpening their pencils again,” said Yasin Keshvargar, a capital markets partner at Davis Polk, the law firm.

Kyverna Therapeutics, which is developing therapies to treat autoimmune diseases, provided the latest sign of investor appetite when it raised $319mn in an IPO last week. Kyverna raised its target price range, sold shares above the top of the increased target, and then its stock jumped a further 36 per cent on its first day of trading.

Peter Maag, Kyverna chief executive, said it was a “stellar outcome” and that he was particularly encouraged by the level of interest from large generalist mutual fund investors, rather than only healthcare specialists.

However, most of the companies that have listed were relatively advanced in the drug development process, and investors remain cautious about backing earlier-stage companies. Metagenomi, a pre-clinical group backed by Moderna and Bayer, priced its $94mn IPO last week at the bottom of its target range, and fell 31 per cent on its first day of trading on Friday.

Maag said it may take longer for fundraising to rebound for the riskiest companies, but added: “If you have good clinical data and know what you’re doing, I think companies are financeable right now.”

Biotechs are particularly reliant on equity markets because they often need large amounts of capital to fund drug development before they generate enough revenue to repay debt.

Keshvargar said an uptick in biotech deals was a “positive” sign for those hoping for a broader rebound in other sectors, but said it was “not directly transferable”.

“Both biotech and non-biotech IPOs benefit from a lot of the same underlying economic circumstances . . . [but] there are some specific biotech factors such as increased M&A activity in the space, and enthusiasm from specialist biotech investors who are key buyers,” he added.

Andy Acker and Daniel Lyons, portfolio managers on Janus Henderson’s healthcare and biotech teams, said the recent pick-up in M&A activity across the sector had been driven in part by US regulators’s approval of Amgen’s $28bn acquisition of Horizon Therapeutics in September.

But that deal may still not be enough to return the industry to the “heady days” of dealmaking and fundraising during the pandemic, when biotech stocks “could benefit regardless of the quality of a company’s pipeline or balance sheet”, they said.

Demand has been growing for multi-manager firms that charge more

Investor eagerness to allocate more money to the hedge fund industry’s costly mega-managers has driven up average fees for the first time in a decade.

Management and performance fees fell every year between 2014 and 2023, according to a survey by BNP Paribas of 238 hedge fund investors, except for 2020 and 2021 when the French bank did not record the data, as investors pulled money from the industry following often-lacklustre returns.

However, annual performance fees increased to 17.82 per cent this year from 16.91 in 2023, the survey showed, the highest level since 2016. Management fees increased to 1.54 per cent from 1.46 per cent last year.

Hedge funds have historically been known for a “two and 20” fee model, where investors pay 2 per cent in management fees every year and 20 per cent on any performance gains. In reality, investors rarely pay fees that high, especially for small to medium-sized hedge funds.

The 2024 increase in fees reflects how global investors are allocating billions of dollars to multi-manager hedge funds that emulate Ken Griffin’s Citadel and Izzy Englander’s Millennium and which have come to dominate the industry.

These firms pursue expensive models that can rely on hundreds of portfolio managers trading a variety of strategies across markets, and so charge higher overall fees than the average hedge fund. Many have consistently made large gains for investors, even during downturns in the equity markets.

These firms often charge performance fees of 20 per cent. Marlin Naidoo, head of capital introductions at BNP Paribas, said allocators had allocated money to the large managers who tend to have higher performance fees, pushing up that figure.

Some multi-managers do not charge management fees, with many opting for a so-called pass-through model where they charge all expenses, including salaries and technology spending, directly to investors. In practice, the pass-through model is equivalent to fees on investor assets of between 3 and 10 per cent.

BNP’s survey does not count the pass-through fee as a management fee, but does take account of the multi-managers that do charge a management fee, which is often above the industry average.

“[Investors] have also allocated to funds which pass through some costs to investors that also charge a management fee of 2 per cent or higher, which has resulted in a jump in fees paid,” added Naidoo.

The pass-through model is controversial with some investors, who argue it does not incentivise management to keep costs down. BNP Paribas’s survey showed that last year investor returns from managers that did not operate the pass-through model beat hedge funds that did.

The Financial Times has previously reported that some multi-manager hedge funds that do charge a pass-through, such as Balyasny and Schonfeld, had a disappointing year for performance in 2023.

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