Native Eyewear Inc. was acquired for $18.8 million last week by A.T. Cross Co., which is on a quest to build a $100 million optics business by 2010. Apparently, the numbers finally worked for everyone. ATX said it had paid $17.8 million in cash and assumed $1 million in short-term debt to acquire Native, a Huntington Valley, PA company popular with the mountain sports crowd.
ATX said Native is profitable, had revenues of $11 million last year, and would add 7 cents per share to earnings in 2009. That bottom-line addition translates to approximately $1.1 million in profits, assuming ATXs share level remains steady.
In addition, that net income level indicates ATX paid roughly 18x earnings, or about the same multiple it paid for Costa Del Sol in 2003. ATX said it financed part of the acquisition with a new $35 million secured credit facility, the balance of which could be used for other optical acquisitions. The companys goal is to have $100 million in optical sales by 2010.
While known historically for its Cross pens, ATX now derives 24% of its revenues and much of its growth from its Optical Group segment. The business was formed in 2003, when ATX acquired Costa Del Mar. It has since taken the brand from $11 million to $37 million in sales. ATX thinks it can grow the two brands collective share of the premium sunglass market from 5% to 8% to 9% over the next three years, which would push ATX Opticals revenues to $70 million.
While there will be synergies in sales, distribution and product development, ATX executives said the deal was more about accelerating growth of a small, but fast growing brand. For instance, ATX will speed up the development of new Native styles, said Chas MacDonald, vice president of A.T. Cross Optical Group and president of Costa Del Mar Sunglasses, Inc.
“Keep in mind that Native has achieved its sales volume with only about a dozen styles,” MacDonald told analysts in a conference call the day the deal was announced. “In comparison, Costa has 46. And while selling more styles does not guarantee more sales, we believe that with a more robust new product flow, Native can both become a bigger player in its existing account base and expand to a new distribution.”
Still, MacDonald sees considerable crossover opportunities. “For example Costa's business is very well developed in the Southeast, a geographic region where Native has limited distribution,” he said.
“Concomitantly, Native has a good distribution in the Northeast and in the Mountain West regions, where Costa is just gaining distribution. We can leverage off each other's strengths to increase the sales for both brands.”
MacDonald said ATX is hopeful it can sell Costa Del Mar into REI and EMS, which already carry Native.
