Sequential Brands (SQBG) to Acquire GAIAM Yoga Brand for $146M (GAIA)

Sequential Brands Group, Inc. (NASDAQ: SQBG) (“Sequential” or the “Company”) announced today that it has signed a definitive agreement to acquire the branded consumer product business from GAIAM, Inc. (NASDAQ: GAIA) (“GAIAM”) for a total purchase price of approximately $146 million in cash.

Transaction Highlights:

• Business Being Converted to Sequential’s Asset-Lite Business Model: Sequential secured new license agreements for core categories that will become effective upon closing; new license partners are acquiring working capital on closing directly from GAIAM and paying approximately $21 million
• Acquisition Immediately Accretive to Sequential Earnings: Deal expected to add approximately $22 million of Revenue and $20 million of Adjusted EBITDA on a full year run rate basis
• Increasing Pro Forma Projection: Sequential’s pro forma annual financial projections being increased to $172 - $177 million of Revenue and Adjusted EBITDA of $112 - $115 million
• Significant Minimum Royalties Secured: Post closing, Sequential’s total guaranteed minimum royalties expected to increase from approximately $360 million to over $500 million
• Margin Expansion for Sequential: Acquisition expected to widen Adjusted EBITDA margin for Sequential by more than 300 basis points
• Strong Growth Potential: Allows Sequential to further tap into growing athletic market of consumer goods
• Seamless Bolt-On: Brand fits in Company’s existing Active Division without incremental overhead & without integration period
• Supportive Financial Partners: Debt financing for Sequential provided by Blackstone’s GSO Capital Partners and Bank of America Merrill Lynch

As part of the transaction, Sequential will acquire GAIAM’s yoga, fitness and wellness product business - which includes the GAIAM and SPRI brands - with expansive distribution through Amazon, Kohl’s, Target, and Bed Bath & Beyond, among other leading retailers and e-commerce channels in the U.S. and abroad. This bolt-on acquisition will seamlessly integrate into Sequential’s Active Division, which is currently anchored by the AND1 and AVIA brands.

In tandem with the acquisition, Sequential signed long-term licensing agreements for the brands’ core categories, which will become effective upon closing. Fit For Life will be the licensing partner for the hard goods and equipment categories as well as the digital properties, and High Life will be the licensing partner for GAIAM’s yoga and athleisure apparel business.

Yehuda Shmidman, CEO of Sequential, commented, “We believe this is a home run for Sequential. The acquisition is immediately accretive to earnings, and aligns with our long-term playbook of acquiring brands with significant, untapped potential where we can immediately unlock value and position them for long-term organic growth.”

Eddie Esses, Active Division President at Sequential, added, “Studies show that over 35 million people in the U.S. practice yoga today, up 76% in the past 4 years, and another 80 million aspire to practice yoga. By acquiring one of the leading brands in yoga, fitness and wellness, the opportunities are vast as we think about gaining market share, adding new distribution and expanding globally.”

With a 20+ year heritage, GAIAM is dedicated to making yoga, fitness and wellness accessible to all through a wide distribution network that consists of approximately 38,000 retail doors, 19,000 store within stores, 5,000 category management locations, e-commerce, and a newly acquired mobile platform which features Yoga Studio, the leading paid yoga app for Apple, mobile, and tablet devices with over 1 million downloads to date.

“The combination of GAIAM’s innovative products and authenticity in the active lifestyle space, coupled with Sequential’s extensive retail relationships and strategic approach to brand building sets the stage for taking both the brands to new levels,” said GAIAM CEO Lynn Powers. “I am happy to be working with Sequential and the Fit For Life and High Life teams to ensure the culture of the GAIAM brands live on and grow.”

Financial Update:

The Company is raising its twelve-month run rate projection from $150 - $155 million of revenue to $172 - $177 million of revenue, and from $92.5 - $95.0 million of Adjusted EBITDA to $112 - $115 million of Adjusted EBITDA. This run rate projection is anticipated after the closing of the GAIAM business and after the completion of the integration of the Martha Stewart business.

The acquisition will be funded by a combination of cash and debt financing. Sequential has obtained committed financing from Bank of America Merrill Lynch and GSO Capital Partners LP, an affiliate of Blackstone Group. White & Case LLP and Gibson, Dunn & Crutcher LLP acted as legal counsel to the Company. The transaction, which is expected to close within 60 days, is subject to customary closing conditions and regulatory approvals.

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