Salt Life parent company Delta Apparel filed for Chapter 11 bankruptcy Sunday, and announced a buyer has emerged as a stalking horse bidder to acquire the Salt Life brand.

Potential buyer FCM Saltwater Holdings has offered $28 million in cash for Salt Life, which operates a wholesale, e-commerce and retail business selling lifestyle apparel, swimwear, and accessories.

In the fiscal year ended Sept. 30, 2023, Salt Life generated $59 million in revenue and $6.1 million in operating income, according to Delta financial filings. The brand’s gross margins totaled 54.6%.

Delta announced in October of 2023 that it had received an unsolicited offer to acquire the Salt Life brand, which Delta acquired in 2013 for $15 million in cash, along with two promissory notes for $22 million and an additional payment if performance targets were met. Salt Life, at the time of the acquisition, had $20 million in sales and a business mostly reliant on wholesale.

However, since that party approached Delta to buy Salt Life, Delta’s business has experienced a downward spiral that has included reduced demand and difficulties obtaining raw materials, which has led to a liquidity crunch, according to Delta’s bankruptcy court filings.

In addition:

• Delta’s DTG2Go business lost its largest customer in May and ceased operating.
• Some Delta suppliers are no longer extending credit to the company.
• The company shut down its operations in Mexico and Honduras, leading to $15 million in severance costs.
• The company has experienced — and continues to experience — a rash of resignations from the board of directors and executive team, including former CEO Robert Humphreys, who stepped down at the board’s request.
• A plan to sell and leaseback a 35-acre corporate campus in North Carolina for $23.5 million fell through.
• The company has slashed its workforce — previously the company had 710 domestic employees and 6,000 international employees. After it closed its international operations, it now has a total of 586 employees, according to court documents.

The company’s bankruptcy filings lay out its financial status: it has $950,000 of cash on hand, and assets of $350 million.

Delta’s liabilities total $250 million, according to the bankruptcy filing.

Working to Sell Salt Life

Salt life has been a bright spot for Delta since it acquired the brand, and the Delta team has hired two different firms to try to sell it, including Robert W. Baird & Co. and, most recently, MMG Advisors.

According to the bankruptcy documents, during initial talks with Delta, FCM Saltwater Holdings sought to renegotiate the price and other terms of the sale due to Delta’s increasing financial distress, which has hurt the Salt Life brand and Delta overall. That caused the initial talks to stall earlier this year, Delta said.

One of the major issues — Delta’s cash crunch has meant it hasn’t been able to purchase the yarn, dyes, chemicals and other production inputs required to supply its manufacturing facilities at levels needed to meet the company’s business plans, according to court documents.

The company recently hired MMG Advisors to again try to sell Delta’s assets, including Salt Life, and resumed negotiating with FCM.

The two parties have since signed an asset purchase agreement for $28 million, which Delta is hoping will serve as the stalking horse bid during Delta’s bankruptcy process. Meanwhile, MMG will try to find additional parties interested in the Salt Life brand as well as other Delta assets. There is no guarantee a stalking horse bid ends up as the winning offer during an auction in bankruptcy court.

Challenges Facing Salt Life

With strong brand recognition, especially in the Southeast, and an experienced and dedicated leadership team under longtime Salt Life President Jeff Stillwell, Salt Life’s fate is now in the hands of the bankruptcy court.

In addition to its wholesale and e-commerce business, Salt Life operates 28 Salt Life stores, a key growth vehicle for the brand.

While Salt Life’s direct business continued to perform well in the quarter ended March 30, like other brands, Salt Life has faced challenges in the wholesale channel, according to Delta.

Salt Life sales totaled $15.5 million, down $3.5 million compared to the same period in the prior year in its most recently ended quarter, with growth in direct-to-consumer sales offset by lower wholesale sales.

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