In its largest acquisition to date, Bauer Performance Sports Ltd. (BPS) last week agreed to acquire the Easton Baseball/Softball business for US$330 million in an all-cash transaction.
For Bauer Performance Sports, the move marks a major step in its plan to build a sports equipment powerhouse as well as further diversify away from its core hockey business. Besides Bauer and Easton, its brands include Mission, Maverik, Cascade, Inaria and Combat. The Easton business includes bats, batting gloves, shin guards, helmets, chest protectors, bags and cleats.
“The combination of the No. 1 brand in hockey and the No. 1 brand in diamond sports is a perfect example of our ability to enhance our performance sports platform,” said Kevin Davis, president and CEO of BPS. “Our existing business is built on a heritage of investing in game-changing research and development, intellectual property, authentic brands and strong consumer connections. The Easton Baseball/Softball business is a perfect fit for our overall platform.”
Easton-Bell also announced last week that it is working towards an agreement with a third party for the sale of Easton Hockey. Easton-Bell officials said proceeds from the sales will be used “to grow and reinforce the market-leadership of the company’s remaining brands Bell, Riddell, Giro, Blackburn and Easton Cycling as well as to strengthen the company’s balance sheet and for other strategic initiatives.”
As a result of the acquisition, BPS will own the Easton brand on top of the Easton Baseball/Softball business while Easton-Bell Sports will retain the Easton Hockey and Easton Cycling businesses. At closing, BPS will enter into a license agreement to permit Easton-Bell Sports to use the Easton name in hockey and cycling only. Easton Baseball/Softball will continue to operate out of its current Van Nuys, CA and Salt Lake City, UT locations.
BPS and Easton-Bell Sports have also agreed to settle certain intellectual property litigation matters related to patents held by Bauer Hockey concurrently with the closing of the transaction.
On a conference call with analysts, Davis said BPS was attracted to Easton because of its 1 market share in diamond sports; its authentic brand equity and heritage; its high-quality, innovative performance products; and strong consumer connections. Easton also adds 143 patents to BPS's existing portfolio of over 485 global patents.
On a pro-forma basis, the Easton Baseball/Softball business had adjusted EBITDA of $33.5 million in its year ended Dec. 31. Revenues were $186 million. Davis said Easton Baseball/Softball business grew at a compound annual growth rate of 7 percent from 2009 to 2013.
BPS said the acquisition will provide significant revenue growth opportunities for BPS, including:
Expansion in the diamond sports segments currently served by Easton,
The expansion of Easton Baseball/Softball's apparel business to include uniforms, and
Territorial expansion of the Easton Baseball/Softball business.
“The addition of Easton Baseball/Softball will increase our growth potential and deliver immediate value to our shareholders,” Davis said. “Just as we have done in our hockey business, we expect to increase Easton's current 28 percent market share in diamond sports by accelerating investment in product development and more strongly connecting with consumers.”
On a combined basis, BPS would have generated pro forma sales and adjusted EBITDA in 2013 (year ended Dec. 31, 2013 for Easton Baseball/Softball and twelve months ended Nov. 30, for BPS) of approximately US$586 million and US$94 million. The purchase price values Easton Baseball/Softball at an adjusted EBITDA multiple of 9.0x, including the value of the tax benefit acquired as part of the transaction. The acquisition is expected to be immediately accretive to adjusted earnings per share.
From a synergy standpoint, the deal will help counter the seasonality of BPS’ business given its traditional revenue steam heavily weighed towards hockey. Operating expenses are also expected to be reduced through leverage under the BPS platform. It’s also expected to benefit from supporting and leveraging technology at both Easton and Combat as well as BPS’ overall innovation platform.
Key leadership at Easton Baseball/Softball will be retained expect for its president, Mike Zlaket, who will leave after the closing of the deal.
BPS intends to finance the transaction, and refinance certain existing indebtedness, with a combination of approximately US$200 million of an asset-backed revolving credit facility and approximately US$450 million of senior secured loans. Bank of America Merrill Lynch, JP Morgan, Royal Bank of Canada and Morgan Stanley have provided BPS with fully committed credit facilities to support the deal. It’s also evaluating a listing on a major U.S. exchange in addition to the Toronto Stock Exchange.
After the transaction closes, BPS intends to consider options it may have to reduce its leverage, including repaying a portion of the senior secured loans with the proceeds of public or private offerings of equity securities.
For its part, the move by Easton-Bell Sports follows a massive management overhaul early in 2013 that saw the exit of Paul Harrington as CEO and a number of other executives. Terry Lee, who was previously co-owner of Bell Sports and served as chairman and CEO from 1989 to 1999, returned as CEO. He had been Easton-Bell Sports’ board. Tim Mayhew, a Managing Director of Fenway Consulting Partners, Easton-Bell Sports owner, was appointed president and COO.
Sources also told the New York Post reported that Fenway Partners had attempted to sell the entire company but couldn’t find anyone willing to acquire Riddell and assume its potential liabilities related to NFL concussion injuries. The 2012 suit filed by 4,500 former NFL players claiming concussion damage is against the League, and also Riddell and Easton-Bell. Riddell was not a party to the $765 million settlement that was struck in August 2013
Following the closing the sale of both of its baseball/softball and hockey businesse, Easton-Bell Sports plans to change its name to BRG Sports with a heightened focus on action sports and football markets. BRG Sports portfolio will consist of Bell, Riddell, Giro, Blackburn and Easton Cycling.
“These transformational transactions provide a terrific opportunity for us to focus on growing our core football and action sports brands and enhancing our cutting-edge, market-leading products, while simultaneously streamlining our operations and solidifying our financial strength,” said Lee, who is Easton-Bell Sports executive chairman as well as CEO. “Becoming a leaner, more focused organization will further enable BRG Sports to move faster and smarter, take full advantage of strategic growth opportunities, and strengthen its broad leadership position in today’s competitive marketplace.”
Lee continued, “We are very proud of the strong baseball/softball business we built, which set the standard for innovation and excellence in the industry. We are confident that under BPS’ leadership this business will achieve its full potential.”
Fenway Partners and Easton-Bell’s other owner, Ontario Teachers’ Pension Plan, will maintain their investments in the company. Fenway Partners acquired Riddell in 2003, Bell Sports in 2004 and Easton Sports in 2006, eventually merging all three.
Paul, Weiss, Rifkind, Wharton & Garrison LLP and Stikeman Elliott LLP acted as legal counsel to BPS. Morgan Stanley acted as financial advisors and Ropes & Gray acted as legal counsel to Easton-Bell Sports.
