TOMS Shoes is covered in mud, figuratively speaking. The company announced its creditors, which are owed roughly $300 million, are taking over the company. The agreement was made in an out-of-court settlement after it became clear Toms would not be able to pay its debt coming due in 2020.
As part of the recapitalization, the new owners are investing $35 million to help grow the business. Toms has struggled in the face of stifling competition from direct-to-consumer brands including Allbirds and Rothy’s, both of which have achieved huge success in a short amount of time.
- The Background: Toms was founded in 2006 as one of the first one-for-one giveaway brands. In 2014, Bain Capital purchased 50% of the business at a valuation of $625 million. As part of the deal, Bain raised $305 million in debt to help finance the buyout of the founder, Blake Mycoskie.
Why it Matters: While Toms isn’t a public company, it’s a great case study on the danger of operating with too much financial leverage (debt) in a volatile industry. Toms is hardly the first retail operation to learn that lesson, and it won’t be the last.