american apparel sells out

American Apparel, the casual clothing chain whose socially-conscious manufacturing, sexually-charged advertising and snug-fitting T-shirts have generated a cult-like following, will be sold to a little-known investment firm for $382.5 million, according to people briefed on the matter.

The decision to sell the privately held company, expected to be announced tomorrow, is a surprise move by the company’s eccentric founder, Dov Charney, who is known for exercising strict, and at times controversial, control over the retailer’s operations.

Mr. Charney has personally photographed many of the semi-naked women featured in American Apparel advertising and is known for hiring employees, most of them female, on the spot during phone calls or at parties.

American Apparel’s buyer, Endeavor Acquisition Corporation, is a small, publicly traded investment group created last year, with less than $125 million in assets. American Apparel is the firm’s first acquisition.. Endeavor Acquisition was founded as a specified purpose acquisition company by Jonathan J. Ledecky, a serial acquirer who started U.S. Office Products in 1994 and turned it into a Fortune 500 company.

Mr. Charney, 37, will remain chief executive after the sale, according to people with direct knowledge of the deal, who discussed the transaction on condition of anonymity because they were not authorized to speak publicly.

American Apparel, founded three years ago in Los Angeles, has become an overnight retail sensation, with 145 stores in the United States and Gap-like ubiquity in Los Angeles and in New York City, where its has outlets in 23 neighborhoods.

But its sales growth has slowed significantly in the past year. Revenue at stores open at least a year — a crucial measure in retailing — rose only 7 percent in 2006, compared with 74 percent in 2004 and 45 percent in 2005, according to documents prepared by Endeavor and obtained by The New York Times.

Still, Endeavor predicted in those documents that American Apparel could reach 800 stores worldwide, which would make it as large as established retail brands like Abercrombie & Fitch and American Eagle Outfitters.

Under the terms of the deal, Endeavor is valuing American Apparel at $382.5 million, people involved in the deal said. Endeavor will pay about $250 million in restricted stock; assume $110 million debt; and pay out $23 million in bonuses, restricted stock and stock options to key employees. Endeavor will be paying about 12.7 times earnings before interest, taxes and depreciation, known as ebitda, on American Apparel’s $30 million in earnings. The company’s earnings are expected to grow to $50 million next year.

At the heart of American Apparel are two threads: a high-minded business model that requires clothes to be made in the United States at double the minimum wage, and a retro-chic that glamorizes the T-shirt-and-jeans simplicity of the 1970s and ’80s.

All of the clothing sold at the chain is manufactured at a factory in downtown Los Angeles, rather than in Asia, where the vast majority of its competitors’ goods are churned out. American Apparel provides its employees with subsidized health care and meals and with free English classes.

The company’s progressive message has won over thousands of young urbanites — Mr. Charney refers to them as “Young Metropolitan Adults” — who flock to the chain for bright-colored T-shirts, leggings and underwear. American Apparel is expected to sell $275 million worth of them in 2006.

But as American Apparel has expanded, its founder, Mr. Charney, has been dogged by accusations of sexual harassment and a bizarre management style that could make it harder for him to operate within the traditional boundaries of a publicly traded company.

Mr. Charney has gained a reputation as the Hugh Hefner of retailing, decorating his stores with covers of Penthouse magazine and acknowledging in interviews that he sleeps with employees. In lawsuits filed in 2005, several employees accused Mr. Charney of creating a work environment in which women did not feel safe.

They asserted, for example, that Mr. Charney conducted job interviews in his underwear, and that he gave vibrators to at least one female worker.

Mr. Charney has denied any wrongdoing.

Still, as a result of the lawsuits, American Apparel employees must now sign a document that declares: “American Apparel is in the business of designing and manufacturing sexually charged T-shirts and intimate apparel, and uses sexually charged visual and oral communications in its marketing and sales activity.”

In an interview with The New York Times Magazine earlier this year, Mr. Charney said of himself: “It’s fun to say, ‘He’s wild and crazy,’ but I’m not wild and crazy. This is the way the adult generation is going to live. They’re not preoccupied by monogamy. Exciting things can happen.”

He continued: “They’re mobile; they can travel; they’re willing to take chances; they’re open-minded and ready for change. That’s what the boomers presented for America, and that’s what this new generation presents for us. I want to be in business with them.”