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TOMS Shoes is Out of Luck

Toms
Photo Credit: theartofpics - stock.adobe.com.

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.

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