Bauer Sets High Growth Targets in IPO Filing

Its prospectus boasted aggressive plans to further dominate the ice and roller hockey equipment business through its Bauer and Mission-Itech brands, quickly establishing its recently-acquired Maverik Lacrosse brand as the leader in lacrosse, and expanding through acquisitions.

 

In the preliminary prospectus filed with SEDAR, the Canadian document filing system for companies, Bauer said it would use the proceeds to buy out the 100% stake of Kohlberg Sports Group Inc., affiliated with the Kohlberg & Co private equity group, for an unspecified amount. The filing did not indicate when the offering might launch, the number of shares to be sold, or the projected pricing range.

However, sources with knowledge of the offering told Reuters that Bauer would list a 20% stake on the Toronto Stock Exchange, valuing the company around CN$375 million (U.S. $375 million at current exchange rates). The IPO itself is looking to raise at least CN$75 million.
An investor group led by Kohlberg & Co and Canadian businessman W. Graeme Roustan acquired Bauer Hockey – renamed Bauer Performance Sports for the IPO – from Nike in May 2008 for $200 million in cash. Bauer has since acquired Mission-Itech Hockey in September 2008, the intellectual property assets from Jock Plus Hockey in November 2009, and Maverik Lacrosse in June 2010.

Nike bought Bauer from Canstar Sports Inc. in 1995 for $395 million.
According to the prospectus, Bauer's revenues grew to CN$257.4 million in its fiscal year ended May 31, up from CN$242.2 million in 2009 and CN$219.5 million in 2008. Net earnings reached CN$2.2 million in the fiscal year ended May 2010 against a loss of CN$19.4 million in fiscal 2009. Adjusted EBITDA improved to CN$31.0 million in its May 2010 fiscal year, up from CN$27.3 million the prior year.

 

In the twelve months ended Nov. 30, 2010, income was CN$16.0 million, adjusted EBITDA was CN$39.2 million, and revenues were CN$282.7 million. In the same twelve month period, adjusted gross profit margin of 40.0% and an adjusted EBITDA margin of 14.5% compared to adjusted gross profit margin and adjusted EBITDA margin of 39.3% and 10.4%, respectively, in its fiscal 2008 year.

In the six months through Nov. 30, Bauer's revenues increased 15.3% to CN$189.4 million. Ice hockey equipment revenues increased 12.9, driven by the successful launch of new skate and sticks lines. Apparel revenues increased 25.3% due to the introduction of its new protective apparel line and increases in team apparel. The impact of foreign exchange increased reported revenues by $6.8 million.

Gross margins in the six months improved to 38.3% from 34% driven by decreased direct material costs. The impact of foreign exchange increased gross profit by CN$3.5 million. SG&A expenses as a percent of sales decreased to 18.6% from 19.5% as the sales leverage offset increased incentive compensation costs and commissions. Adjusted EBITDA increased 34.2% to CN$36.1 million. Net income increased 54.7%, to CN$13.3 million, driven by the sales increase. The impact of foreign exchange increased net income by CN$1.8 million.

Bauer said in its prospectus that it holds the number one market share position in ice hockey equipment with an estimated 45% share of ice hockey equipment sales in fiscal 2010. It claims to have more than a 60% share in skates and helmets and more than a 35% share in every other equipment category.

As a testament to its dominance, Bauer noted that for the 2010/2011 NHL season, approximately 90% of NHL players wear or use at least one piece of Bauer ice hockey equipment although less than 18% are under formal endorsement contacts with the brand. During last year's NHL Stanley Cup finals, Bauer noted that 71% of the players used Bauer skates, 48% used Bauer sticks, 55% used Bauer helmets, 43% used Bauer visors, 45% used Bauer gloves and 45% used Bauer pants.
It also claims to be the “fastest growing share” in ice hockey equipment with its 45% share in 2010, up from 42% in 2009, 41% in 2008, 35% in 2007 and 28% in 2006.

At the same time, Bauer said Mission is the leading brand in roller hockey. Along with Bauer branded product, the company controls 55% of the share in roller hockey equipment. It finally said its Maverik brand is “an authentic, cutting-edge brand which we intend to grow into a market leader in the lacrosse equipment industry.”

Bauer said its strengths that have driven its success in ice hockey equipment “are core elements of what we believe is a world-class performance sports products platform that is unique to our industry. We believe we can successfully apply this platform to other performance sports categories and markets.”

That platform, according to Bauer, consists of strong and authentic brand, a commitment to R&D and innovation, deep knowledge of consumers and players; proprietary technologies and patents; marketing prowess; a global retail and distributor network; and cost efficient manufacturing operations. Bauer particularly highlighted its R&D facility located in St. Jerome, Quebec, where it employs a rolling five-year innovation cycle for each product category, resulting in a steady stream of approximately 100 to 150 new product launches each year.

 
A Public Bauer Performance Sees More Acquisitions in its Future…

 

In roller hockey, Bauer said it successfully integrated existing Mission technology into its product offerings, most notably the patented hi-lo chassis for roller hockey skates. Bauer is also adding Maverik personnel at its St. Jerome facility to drive innovation in lacrosse.

The prospectus noted that Bauer is now led by President and Chief Executive Officer Kevin Davis, who has been with Bauer for more than 9 years. Its senior management team has an average of 17 years experience in the hockey, sporting goods and consumer product industries, including with Nike, Procter & Gamble, Unilever and the Boston Bruins.

Regarding growth strategies, Bauer said its commitment to innovation will led to greater market share gains in ice and roller hockey. For example, successful launches such as the Supreme line of composite sticks has helped doubled its revenues in the hockey stick category from Fiscal 2006 to Fiscal 2010. It expects to overtake Easton as the leader in the sticks category this year.

Geographically, it plans to target less-penetrated areas such as in Eastern Europe and Russia. In fiscal 2010, 38.8% of its sales were in Canada, 34.8% in the U.S., and 26.4% to the rest of the world.
Another opportunity is women's ice hockey, in which participation has approximately doubled in the last decade and now represents 12% of all registered players globally. Bauer also plans to put greater emphasis on the on the lower-level 'performance' and 'recreation' segments of the hockey market, noting that its innovation and marketing have traditionally focused on elite-level products.

Finally, hockey apparel and bags represented only 4.7% of fiscal 2010 revenues but grew 34.8% in the year.

In lacrosse, the goal is for Maverik to become a leading lacrosse brand by 2015. The prospectus noted that the category is currently led by five major brands: Warrior, Brine, STX and deBeer, each of whom offers a full line of products, and Cascade, which focuses on  helmets. Maverik’s net revenues have increased steadily since its 2008 fiscal year, representing a compound annual growth rate of 36.9% through the end of its 2010 fiscal year, “and it has the potential to substantially grow its current market share.” It also has little presence in Canada, which Bauer estimated as a $10 million market.

Finally, Bauer plans to grow through strategic acquisitions of complementary sports equipment and apparel companies and brands that are or have the potential to become market leaders in their relevant category, whether in ice hockey, roller hockey, lacrosse or other performance sports. Bauer said its past acquisitions have demonstrated that its expertise and scale can help other brands grow. “We actively review performance sports equipment and related apparel companies that have growth potential and would benefit from our platform and scale,” Bauer said in the prospectus. “We seek companies with, among other things, strong and authentic brands, industries that demand high-performance and innovative products, new technologies and strong consumer marketing techniques.”