DBA Preferred Fragrance takes loan against the future

31-Aug-2015 - Last updated on 01-Sep-2015 at 15:51 GMT

The mass-market perfume distributor has struck an asset-based financing deal with Bibby Financial Services for several million dollars to sustain business as usual.

Middle-market player DBA Preferred Fragrance has taken on an $11m revolving line of credit as an asset-based loan from the firm.

In a media statement announcing the deal, collateral was not disclosed. Though it’s likely the company’s future revenue is on the line and that Bibby has taken control of the cash flow for DBA Preferred Fragrance for the duration of the contract.

Star power
Celebrity endorsed fragrances are losing market share. In Q3, several of Elizabeth Arden’s fragrance lines “such as Britney Spears, Hillary Duff, [and] Elizabeth Taylor…fell by 18%, underlining weakness in the celebrity fragrance market,” reports Cosmetics Design.

“The company creates fragrances inspired by leading designers and celebrities and produces a number of collections,” notes the media statement from Bibby. Since that’s the segment Preferred specializes in, the drop in that market is, perhaps, an underlying reason the company opted for financing at this time.

All the same, the lender expressed optimism about the deal. “Bibby recognized value and is pleased to support Preferred's ownership and management team,” says Leigh Lones, CEO of Bibby Financial Services Americas.

Holiday season
With this cash infusion, DBA Preferred Fragrance plans to ramp up for holiday: “Preferred Fragrance will use the funding to build inventory for seasonal orders,” confirms the media statement.

The New York company’s fragrances are priced affordably and sold in more the 50,000 stores across the US, including in drug stores, apparel and mass market retailers. The company’s strategy may pay off. Star-endorsed scents are conventional holiday gifts.

Deep pockets
Financing firms like Bibby lend to businesses looking to compensate for cyclical sales changes as a matter of course. "When companies have seasonal ebbs and flows due to retail demand, obtaining cash flow to continue producing can prove difficult," explains Lones.

She adds, "asset-based lending is a practical way for a company to leverage its assets to get the working capital needed to keep its business moving forward.”