Billabong International expanded its accessories reach this week through Nixon Inc. Billabong announced the reaching of an agreement to acquire the California-based premium watch and accessories manufacturer.
Nixon was founded by Andy Laats and Chad DiNenna, who together hold an effective 50% ownership interest, in 1997. Both Laats and DiNenna will continue with the business with Laats remaining as president and DiNenna continuing to direct global marketing efforts.
The purchase price comprises an initial payment estimated at A$73 million ($53.6 million) and a conditional maximum deferred amount calculated as the greater of an estimated A$24 million ($17.6 million) or 2.25 times 2010 EBITDA. The payment of this maximum deferred amount to all Nixon shareholders is conditional upon both founders fulfilling their respective five-year employment contracts. If both founders fulfill less than the five-year term of their respective employment contracts, then the deferred amount is reduced in accordance with a sliding scale. The purchase will be fully debt funded by Billabong.
Billabongs Mr ONeill said the purchase was expected to be slightly EPS negative in the year ending June 30, 2006, due to business seasonality, but EPS positive in the 2006-07 financial year and beyond. The acquisition is forecast to deliver a pre-tax return on capital employed in excess of Billabongs pre-tax cost of capital in 2006-07.
“We see the brands inclusion into our group as a great opportunity as it gives us a firm foothold in a growth category in which we were under-represented,” he said.
Nixon is expected to comprise 5% to 6% of Billabong's group sales for the 2006-07 financial year.