Investors Approach Struggling Solo Brands for Possible Chubbies Acquisition

Solo Brands has received inbound M&A interest from investors regarding the company’s growing athleisure brand, Chubbies, according to sources. This comes amid continued declining financial results and the parent company issuing a going-concern warning in its latest 10-K.

The warning could signal an upcoming restructuring, according to Octus’, formerly Reorg’s, analysis of Solo Brands. According to the company’s 2024 10-K filing, management stated that because of uncertainty in the business and expected levels of debt, the company does not expect to remain in compliance with its credit agreement financial covenants. A traditional competitive sale process for Chubbies, which typically could take as long as six months, is likely not a viable option given the urgent situation of Solo Brands’ finances, sources said.

According to the 10-K filing, Chubbies increased revenue 11% year over year to $113 million while adjusted EBITDA grew 17% year over year to $16 million. On the basis of its financial profile, two investment bankers pegged valuation for Chubbies at roughly 12x EBITDA or about 1.75x revenue, which could indicate an enterprise value of nearly $200 million.

An upward growth trajectory and roughly 10% profit margins for an apparel company in the on-trend athleisure category is likely to spark interest from equity investors, if they can secure debt financing from lenders, a second investment banker said.

Typically, equity investors prefer to buy brands and intellectual property out of bankruptcy, if that path seems inevitable for the parent company, one investment banker said. However, M&A activity in the athleisure space is showing strong signs of life and could trigger preemptive buyout offers, he noted.

In 2024, Solo Brands began reporting financials for Chubbies as a separate segment from its Solo Stove and TerraFlame outdoor brands, which could make a potential carve-out easier for buyers, sources said.

Solo Brands acquired Chubbies in 2021 for roughly $130 million in cash and stock, according to its S-1 filing. With four years of growth under its belt and positive EBITDA movement, its value should be worth more today compared with 2021, sources noted.

The online retailing segment is experiencing “remarkable” growth in the athleisure market, which is projected to expand at an approximately 7% compound annual growth rate from 2024 to 2028, according to research firm Mordor Intelligence.

In addition to shorts, the Texas-based Chubbies brand is known for its pants, swimwear, tops and accessories.

Recent M&A activity in the men’s athleisure space includes a November 2024 $825 million investment in California-based Vuori led by private equity firms General Atlantic and Stripes. The transaction raises the brand’s valuation to $5.5 billion, according to a press release. In 2021, Vuori raised $400 million from SoftBank Vision Fund 2 at a previous valuation of $4 billion.

Strong online sales coupled with a strong physical retail presence may account for investors’ acute interest in Vuori, said one banker.

Solo Brands and PJT Partners did not return requests for comment.