Columbia Sportswear Company won out over three other bidders in the London Fog Bankruptcy auction of the Pacific Trail group of brands with a bid of $20.4 million last week. There were only three other bidders involved in the process, Perry Ellis, Studio Ray, LLC, a sportswear company whos products are primarily sold at Target, and an unnamed Canadian company who was only interested in the Towne brand. The transaction closed on March 31.
All of the brands under the Pacific Trail umbrella were part of the purchase, including Pac Tech, Towne, Black Dot, and Moonstone. The company also owns registered trademarks for many of these brands in over 40 countries. Also included in the deal were certain liabilities, primarily the lease on Pacific Trails warehouse and distribution center and several licensing agreements. No debt was transferred in the deal.
David Greenstein, CEO of the London Fog Group, said, “The divestiture of our Pacific Trail business represents a major step in our plan to financially restructure London Fog Group. We were very pleased by the broad interest in and active bidding for the Pacific Trail business. We believe the transaction is in the best interests of Pacific Trail and the talented team of professionals that lead the business. Columbia is the ideal company to continue building on the success of the Pacific Trail and related brands this season and going forward.”
COLM said the acquisition brings to an end the long-term rivalry between it and Pacific Trail. Just before the deal closed, SEW caught up with Columbia VP and general counsel, Peter Bragdon, who said that the Boyles have been competing against Pacific Trail since the company was started.
“The real reason for us to attend the auction was the Pacific Trail brand,” Bragdon said. “Thats not to say that the other brands do not have value, they certainly do. There is a lot of cache in many of the brands, but if this had been an auction for only the Moonstone brand, we would not have been there.”
The auction process progressed very rapidly, with the bankruptcy judge approving the sale and initiating the bidding process within the span of one week. Bragdon said that the auction was approved on Thursday March 23. He and his team arrived in Seattle on the following Monday, received Board approval for the acquisition on Tuesday, finished the bidding process on Wednesday, and the deal closed on Friday. According to Bragdon, it is highly unusual for a bankruptcy auction to progress this rapidly, and he suspects that the deal needed to close quickly in order to ensure the proper amount of support for the incoming orders and outgoing deliveries.
Many industry watchers agree that the acquisition was primarily a move to gain a foothold in the mass retail channel. While Bragdon did not specifically state that this is the case, he did say that the acquisition would give Columbia “another tool” to develop their distribution segmentation. Currently, Pacific Trails primary customers are Kohls, Mervyns, Costco, Sears, JC Penney, and Target. These six customers make up more than 50% of the companys business, and they are, for the most part, distribution channels where Columbia has limited penetration.
Sources close to the deal claim all of the Pacific Trail brands combined are expected to be a $50 million to $60 million business in 2006 with $40 million of orders already in-hand. The Pacific Trail brand accounts for just under half of that and Moonstone accounts for about 6%. If the company maintains a 10% EBITDA margin, or $5 million, that would put the acquisition at only 4X EBITDA and less than half of sales. However, Bragdon points out that the company was not profitable enough to keep it out of Bankruptcy court. Ten percent operating margins may not be feasible until Columbia is done with the integration.
With this single deal, the company hit three targets that could be considered milestones. Columbia Sportswear acquired more brands than it currently manages, opened up an important new distribution channel, and obtained several new customers in the mass retail channel.
“With the acquisition of Pacific Trail, we continue to strengthen our portfolio of authentic, outdoor brands,” Tim Boyle, president and CEO of Columbia Sportswear said in a prepared statement. “We are particularly enthusiastic about the opportunity to leverage our design and capital strengths to expand the growth opportunities for Pacific Trail products in distribution channels that Columbia has not yet developed.”
Looking ahead, Columbia said it has not had the opportunity to evaluate all of the pieces of the business and has not decided how it will position the various brands. Bragdon said that the company has not yet decided whether or not it will actually keep all of the brands, but it is clear that at least Pacific Trail will remain intact. In the mean time, the company will “let the dust settle” and make some key decisions for the future of the brands. It is expected that Columbia will give more information on the deal and the positioning of the various brands at its next quarterly conference call.
>>> Great fit
Now Columbia can play at all levels of the pyramid…
