Polartec is in trouble. Here’s a strategy that could save it
Its Polarfleece fabric, invented in 1979, was named one of the 20th Century’s Greatest Inventions by Time Magazine. But Polartec faces an uncertain future. The company, then known as Malden Mills, grew rapidly in the 1980s and early 1990s as the US military and the world’s leading brands of outdoor, athletic, and aerobic apparel discovered Polartec fabric technology’s ability to achieve exceptional performance and style.
Outerwear producer Patagonia’s now iconic Synchilla fleece jacket was the first product to feature Polartec’s Polarfleece fabric. It was soon followed by other well-known brands, including Lands’ End and L.L. Bean. From the beginning, Patagonia partnered with Polartec to create innovative designs using the mill’s fabrics; that partnership continues today.
A disastrous explosion and fire in the winter of 1995 threatened to shutter the mill. But the mill’s owner, grandson of the company’s founder, refused to lay off workers and had the mill up and running within a few months. The mill incurred considerable debt in rebuilding and faced difficulty paying its creditors. It was in and out of financial difficulties. In March 2007, private equity firm Versa Capital Management, known then as Chrysalis Capital Partners, bought the mill out of bankruptcy for $44 million and renamed it Polartec.
But Polartec is in trouble once again. Its private equity owners have announced a decision to close Lawrence’s state-of-the-art facility.
A textile manufacturing center from its 1830s inception, by the 1940s Lawrence suffered as its woolen mills grappled with the rise of synthetic fiber and the migration of work. Population dropped from a peak of nearly 100,000 to about 63,000 in 1980. Since then, the population has grown, and lately private investment has boosted employment and business startups. But Polartec’s closing is a serious obstacle to continued progress. Its 300 full-time and seasonal unionized workers earn decent wages and benefits. The factory is one of the largest private employers in the city. Carlos Alvardo, a 26-year Polartec employee noted, “There are no jobs like these in Lawrence anymore. What will people do to support their families?”
Versa, Polartec’s owner, blames the decision to close the Lawrence facility on increased market pressure and excess capacity. But does the problem rest with Polartec or with Versa?
Specializing in taking over distressed companies, Versa claims to be able to turn these businesses around in a few years and sell them at a high profit. Polartec, with its great line of products and customer base, but with a balance sheet in need of repair, was an ideal turnaround candidate. The company had shed its former pension liabilities and reduced its debt in the bankruptcy proceedings, giving Versa a head start on turning it around. In October 2007, Versa’s managing partner reported that the mill would finish the year with its first profit in years. In 2012, a Polartec spokeswoman described the company as “doing very well.” Now we learn that Polartec isn’t profitable.
Polartec continues to manufacture a wide variety of popular fabrics, with Patagonia, Lands’ End, The North Face, and the Pentagon as customers. The problem does not seem to lie with the mill. The same cannot be said, however, of Versa.
PitchBook data, which tracks the private equity industry, reports that the Versa fund that owns Polartec is not doing well. The fund’s performance placed it below the median for private equity funds. Its investors are losing money. As of April 2016, 10 years after it was launched, the fund had returned only 70 cents for every dollar invested in it by pension funds and other institutional investors. And it’s not just Polartec that Versa is having trouble with. Six of its companies and add-ons are still unsold, and their value is declining. Retaining Polartec but shuttering its main mill and moving production to satellite sites is unlikely to let the company prosper or the fund’s investors see a positive return.
Closing Lawrence snuffs out the innovative heartbeat of the entire enterprise. The Polartec mill in Lawrence remains viable; it’s Versa that has failed. A sale to a strategic buyer who could acquire the mill at its current depressed price would be a win for Versa’s investors as well as for Polartec’s workers and for Lawrence.
Patagonia, which has partnered with Polartec since the invention of Polarfleece and continues to use the mill’s fabrics in its high-performance outerwear, seems like a natural to take it over. With Polartec’s great product lines, dedicated workforce, continuing innovations in fabric performance, and a solid customer base, it should not be difficult for the right partner to move this company to profitability.
Eileen Appelbaum is senior economist at the Center for Economic and Policy Research and coauthor of “Private Equity at Work: When Wall Street Manages Main Street.” Robert Forrant, a professor of history at UMass Lowell, is an editorial board member of MassBenchmarks.