Li & Fung Ltd (0494.HK), a global supplier of apparel, is in advanced talks to buy Synergies Worldwide, a small, New York-based supplier, a source familiar with the matter said on Thursday.
The move would help Hong Kong-based Li & Fung gain a better foothold in the fast fashion and discount clothing space.
Fast fashion refers to apparel retailers that respond quickly to changing styles by moving new merchandise into their stores throughout the year.
Li & Fung is now negotiating the finer points of a deal with Synergies, which specializes in low-cost sourcing and has a strong foothold in manufacturing centers like India, Pakistan and Bangladesh, the source said. The source did not want to be named because the talks are not public or final yet.
A Li & Fung spokesperson in Hong Kong said the company does not comment on market rumor, and Synergies did not respond to an email seeking comment.
Suppliers like Li & Fung and Synergies act as middle men, working with manufacturers of apparel and other goods to manage the flow of products to retailers.
With 60 percent of Li & Fung's sales destined for U.S.-based retailers, investors are increasingly concerned about the impact of sluggish U.S. growth and data that has pointed to weak consumer spending.
In the United States, fast fashion and discount retailers are the two segments that have been doing well in the brittle economy, successfully taking market share from rivals that operate on more traditional supply chain processes.
Li & Fung's shares slumped in August after the exporter posted weak interim results. The company suffered a further blow in September when Wal-Mart Stores Inc (WMT.N) outlined a new sourcing arrangement with the company, triggering concern over the longer-term prospect of Li & Fung's sourcing business.
Li & Fung, which is halfway through an ambitious three-year growth plan that aims to grow core operating profit to $1.5 billion by 2013, has said it would grow the company both organically and through acquisition. Some analysts questioned whether the company's acquisition-led business model still works.
Synergies has a stronger foothold in Europe, where its clients include fast-fashion companies like Zara owner Inditex (ITX.MC), Promod and Alcott. The company also works with price-conscious discounters like KiK Germany. (Reporting by Nivedita Bhattacharjee in Chicago; Editing by Leslie Adler)