ThreeSixty Group is on a shopping spree.
The toy and gadget designer and distributor paid about $42 million to Palo Alto-based Menlo Equities for a new headquarters in the Irvine Spectrum, a five-story office building Mazda North American Operations plans to vacate this summer.
The deal comes two months after the company announced it acquired The Sharper Image brand from Iconix Brand Group Inc. in New York for $100 million in cash. It also bought the FAO Schwarz brand from Wayne, N.J.-based Toys R Us Inc. for $45 million in October, according to a filing with the Securities and Exchange Commission.
“When we moved [to Irvine] we thought this would be our forever home,” said co-founder and Managing Partner Kirk McLean, referring to ThreeSixty’s current headquarters, a 26,000-square-foot building it purchased four years ago. “Thankfully, we’ve been blessed with a lot of growth for the last two years … Right now, we are popping at the seams. We never saw it coming.”
The company, which posted more than $500 million in revenue last year, according to the Business Journal’s estimate, plans to increase its local workforce by 50% to about 150 by year-end. It’s beefing up its creative teams and will hire industrial designers, graphic artists and product engineers and product managers.
“We design and develop all of our merchandise here in Irvine, so we are looking for people that can create anything from innovative gadgets to really fun kids’ toys,” McLean said.
“We are almost doubling our yearly output of new products,” co-founder and Managing Partner Mike Roberts said. “With the acquisition of The Sharper Image, for example, we are planning on launching hundreds of new products over the next couple of years. There will be a lot of room for growth.”
‘Game Changer’
The Sharper Image name is on various lifestyle, electronics, wellness, fitness and travel products sold at department and specialty stores. ThreeSixty has licensed the brand since 2008, but owning the name is a game-changer, McLean said.
“When you are renting a house, you can’t talk yourself into painting the walls, and when you buy a house, not only do you paint the walls, but you’ll also put wood on the floors,” he said. “When you own a brand, you can really invest in its future. Certainly, there are items that we may have not done previously that we’ll now go wholeheartedly into—some that may have a little longer-term return and be really impactful.”
ThreeSixty also has big plans for the FAO Schwarz brand. The 154-year-old toy retailer closed its flagship store on Fifth Avenue in New York in July 2015, six years after it was acquired by Toys R Us.
“We are humbled by the big shoes that we are filling with this brand,” McLean said. “[This year] we are going to launch ‘shop-in-a-shop’ in some of the prestige retailers across the United States, and we’ll be [introducing] a line of FAO products that were designed from scratch in 2016 and 2017.”
The FAO name may land on toy and holiday decor items, as well as be licensed for use on “non-toy products,” including apparel, books and candy. The company is “also contemplating a direct-to-consumer play—both in catalog and online—and starting to explore the inevitable brick-and-mortar flagship stores that with any luck we’ll be able to put in existence in the next couple of years,” McLean said.
FAO Schwarz and Sharper Image currently account for 30% of ThreeSixty’s product lineup. Another 50% comes from 12 in-house developed brands—BLAKJAX, Homespace Solutions and Tula, among others. It also makes toys and gadgets under license for Discovery Kids, Animal Planet, Laura Ashley, the Smithsonian and Emerson.
Together the products account for more than $1 billion in sales at Macy’s, Target, Kohl’s, Kmart, Costco Wholesale, The Home Depot, Wal-Mart, Bed Bath & Beyond, CVS and other large retailers.
MerchSource
ThreeSixty Group was formed in 2011, after MerchSource LLC merged with its Hong Kong-based sourcing partner.
“MerchSource is a company that Mike and I and our partners founded 17 years ago in Foothill Ranch,” McLean said. “We were 100% devoted to design and developing innovative merchandise. ThreeSixty Sourcing, meanwhile, was created to find great factories, oversee quality, logistics with overseas manufacturing in Asia. [They worked] for a lot of brands like ourselves and our intention was to take that bandwidth that ThreeSixty had and utilize it just for our own company so we can expand our ability to produce more product each year.”
The company, which employs more than 500 globally, obtained a $130 million credit line from GE Capital in 2013 to serve as “working capital” for its operations in the U.S. and Hong Kong.
AEA Investors LP in New York—which manages more than $10 billion in capital and whose portfolio of companies includes Tustin-based Balboa Water Group LLC, 1-800 Contacts, 24 Hour Fitness, Burt’s Bees, Tampico Beverages and Graco Children’s Products—two years ago made a “majority investment” in ThreeSixty.
“AEA has been a partner that allowed us to make these bold moves like FAO Schwartz and Sharper Image,” McLean said. “Our investment [strategy] together with AEA is that [ThreeSixty] can build just about anything and sell it just about anywhere in U.S. retail … We go out and look for great acquisition strategies in two different buckets: Great brands and fledgling product companies that we can help foster …with stronger offerings of product and stronger distribution.”
ThreeSixty lives up to its name when it comes to seeking opportunity with a circumspect view of the market.
“Less than 5% of our sales are international, but it’s an initiative that we are working on actively,” Roberts said. “We are looking at a lot of opportunities around the world right now—that’s our initiative for 2017, and that will be a growing part of our business over time.”
The new headquarters, on 7755 Irvine Center Drive, was listed for sale last year by Eastdil Secured. Chapman University wanted to buy it for its Brandman University affiliate. However, that deal fell apart after the school was not able to complete the sale of an existing building it owned elsewhere in the Irvine Spectrum to Blizzard Entertainment Inc.
