Italian tailor Pal Zileri up for sale

PARIS/MILAN - The family owners of Italian suitmaker Pal Zileri are looking to sell their holding and bring in external investors to boost the brand's international expansion and revive its fortunes, sources close the matter have said.

Pal Zileri, known for its classic tailored suits priced at over 2,000 euros ($2,600), competes with the likes of Canali, Corneliani, Brioni, part of PPR, Ermenegildo Zegna and Hugo Boss.

The four family shareholders who own 65 percent of the company are seeking to sell all or most of their holding, ideally to investment funds which already have fashion brands in their portfolio, a source close to the deal told Reuters.

"The brand needs repositioning on growing markets and to reduce its debt," the first source said, adding that the company's debt stood at around 50 million euros.

Pal Zileri declined to comment on the shareholders' plans to sell. "Being an interesting company, we have been approached many times in the past by possible investors but nothing happened," a spokeswoman said in a an email on Thursday.

The search for additional investors could be complicated by the family owners' sale of an initial 35 percent stake in 2008 to one of its suppliers, the Cairo-listed Egyptian textile group Arafa Holdings which also works for retailers such as GAP, Macy's and Marks & Spencer.

At the time, the transaction valued the entire company at around 73 million euros, or 14 times earnings before interest, tax, depreciation and amortisation (EBITDA).

Arafa Holding has a five-year call option that enables it to acquire the remaining 65 percent which expires this year and has first right of refusal if other shareholders want to sell.

It is not yet clear what Arafa will do if new investors are found, the sources said. Nobody at Arafa Holding was available for comment on Thursday.

Located in Quinto Vicentino, in the northern Veneto region, Pal Zileri generates more than 60 percent of its sales in Western Europe, of which 28 percent are in crisis-hit Italy.

Pal Zileri makes and distributes men suits under licence for Borsalino, Cerruti 1881 and Moschino as well as clothing for Lanvin and Zilli among others, a business which overall makes up about 21 percent of turnover.

Manufacturing for rivals is not a profitable business and makes the company vulnerable to fluctuations in revenues when orders are cut, a second source told Reuters.

"They need capital to develop their own brand and they are in a vulnerable position because of their business working for others," the second source said.

In 2012, Pal Zileri made EBITDA of around 7 million euros on estimated sales of 150 million euros.

The second source close to the talks said the company's enterprise value could range between 60 and 100 million euros.

When Arafa entered its share capital, Pal Zileri aimed for sales of 200 million euros in four to five years.

"They (Pal Zileri's family owners) hope the Egyptians will consent to different partners from the Italians, who want to sell," the same source added.