Seeing the move as a way to “significantly increase” Rawlings team sports sales, Jarden Corp. agreed to acquire Jostens Inc. for $1.5 billion.
Jostens, which generates approximately $740 million in annual revenue, is a leading seller of yearbooks, class and championship rings for students and professional athletes, as well as caps and gowns, diplomas, and varsity jackets and other products that supports schools and students.
The business was brought from investment funds managed by KKR, aPriori Capital Partners, and other stockholders with the purchase price equaling to approximately 7.5x adjusted EBITDA.
Jarden said the transaction adds a market-leading, niche consumer brand to Jarden's portfolio; brings customizable production capabilities in printing, jewelry, and apparel; deepens Jarden's talent bench; and is expected to enhance Jarden's overall gross profit and EBITDA margins.
Given its focus on the educational and achievement channel already present in its team sports business, Jostens will be reported in Jarden Outdoor Solutions segment, which owns more than two dozen sporting goods brands, including Coleman, K2, Marmot and Shakespeare and Abu Garcia fishing rods. Its team sports lineup is led by Rawlings but also includes Worth, Miken, Debeer, Gait Lacrosse and Jarden Sports Licensing.
On a conference call with analysts, Jim Lillie, Jarden’s CEO, said the acquisition will bring cross-selling synergies with Jostens' approximately 600 reps as well as Jarden’s independent reps
“We are able to have access to the schools. We have a good uniform business,” said Lillie. “But the natural combination of the people selling letter jackets as well as achievement awards like trophies, rings, certificates of merit to those sports teams, as well as just combining the access that one group may have versus the other, there is an opportunity to really increase the access that we have in that academic channel, and that's really what we are excited about.”
In addition to the Rawlings scholastic sports equipment and uniform business, the acquisition will support the scholastic fundraising business of its Yankee Candle business. Said Lillie, “What we're looking at is the differentiation between the access and those channel points to leverage across the teams.”
Jarden also expects to take advantage of Jostens strength in producing customized product. As an example, Martin Franklin, Jarden’s founder and executive chairman, noted that Rawlings already has a Design Your Own Glove custom glove-builder capability on Rawlings.com.
“The customization of consumer products is a meaningful trend, not only in the educational channel, but also a trend that we have been exploring across Jarden's platform, particularly as we increase our direct-to-consumer efforts,” said Franklin.
But Martin said Jostens overall fits Jarden’s criteria of acquiring businesses with category-leading positions in niche markets.
“It is an iconic brand with a number-one position as the market leader across all of its core category: year books, rings, caps and gowns, diplomas and regalia, and varsity jackets,” said Martin. “Jostens has significant presence in the education and achievement channel, with 90 percent customer retention rates driving annuity-like repeat purchases. Like so many of our products, Jostens exhibits staple-like characteristics. This has enabled it to be extremely resilient, delivering consistent results through both growth and recessionary economic cycles over its 118-year history.”
Other factors supporting the sale include Josten’s track record of strong cash flows supported by high margins and low capital expenditure, typically 3 percent to 4 percent of sales. Also, Jostens’ sales are predominantly U.S., which largely insulates its financial results from currency fluctuation. The business peaks in the second quarter, providing a “more even balance” to Jarden’s financial results. Jostens’ large direct-to-consumer business is expected to support Jarden’s e-commerce efforts.
For its part, Jarden's consumer products capabilities and scale is expected to help accelerate Jostens' expansion into new products in adjacent markets to support top-line growth and profitability. Chuck Mooty, Jostens president and CEO, will continue to lead the business.
“This is a significant milestone for Jostens,” Mooty said. “Jarden's scale and track record of making long term investments will provide Jostens the ability to innovate and develop powerful new products and services to accelerate our growth.”
Said Lillie, “The resources and the scope of this network amplify existing opportunities and create new revenue drivers, which Jostens will now contribute to and benefit from.”
Jarden will use the acquisition to improve its cost structure, including using Jostens' printing expertise and capability to benefit the company’s own labeling and printing cost. But any cost synergies at Jostens will be reinvested to accelerate product marketing and innovation for the acquired brand.
Jostens is expected to be accretive to 2016 adjusted earnings per share by approximately 5 percent to 7 percent on a pro forma basis. Additionally, Jostens will enhance Jarden's overall margin and cash flow. Including Jostens, Jarden's combined revenue for the 12 months ended June 30, 2015 would have been approximately $10 billion.
A financing commitment for the full amount required to consummate the transaction has been received although Jarden may choose to fund a portion of the transaction with excess cash on hand, bonds, bank debt and/or common equity.
Jarden also said its results in the third quarter are performing in line with its expectations, as well as those of Wall Street.
