Billabong International Ltd reached an agreement to acquire West 49, the Canadian action sports retailer, for C$99.0 million ($94.3 million) in an all-cash deal. The acquisition of West 49, one of Billabong's retail partners in Canada, will allow the Australian company to expand its franchise of brands in North America while significantly increasing its retail network.

 

Based in Ontario, West 49 has 138 primarily mall based stores in nine provinces across Canada under the five banners. These include West 49, with 81 locations; D-Tox, 19; Off The Wall, 16; and Amnesia/Arsenic, 17. It also operates five Billabong stores under license in Canada. The acquisition will supplement Billabong's existing North American retail footprint, lifting its company-owned store count from 90 to approximately 230 doors in this region. In total, it gives Billabong a global retail presence of approximately 510 company-owned stores.

 

The transaction, unanimously recommended by West 49's board of directors, is expected to close in September and be EPS accretive in FY2011. Key West 49 management, including founder and CEO Sam Baio, will continue to lead the West 49 business.

 

Billabong CEO Derek O’Neill said a core impetus was to increase the penetration of Billabong’s brands within the Canadian market.

 

“West 49 is a complementary business and promises to be an ideal Canadian distribution platform for Billabong to showcase its brands and extend its reach to the end consumer,” said O'Neill. Billabong stressed that West 49 will continue to stock competitor brands.

 

“We already have a good understanding of each others business and we have worked closely together to develop the Billabong Canada retail stores,” said Billabong North America general manager Paul Naude.

 

“Culturally we are a great fit and the fact that we already have a close relationship with West 49 means that the transaction makes even more sense.”

 

Brands within the Billabong group include Billabong, Element, Von Zipper, Honolua Surf Company, Kustom, Palmers Surf, Nixon, Xcel, Tigerlily, Sector 9 and DaKine. But the deal follows a number of acquisitions of retailers, including the May 2010 acquisition of Becker Surf and Sport, including Becker's five brick and mortar retail stores in Southern California and the www.beckersurf.com online business; as well as U.S. online boardsports retailer Swell.com.  Billabong also earlier this year acquired an interest in Australian online board sports retailer, Surfstitch.

 

In its own statement, West 49 noted that the acquisition price of Canadian $1.30 per share represented a 136% premium to West 49's closing price of Canadian 55 cents a share last Tuesday. The deal was approved by a special committee of its board with the benefit of input from its independent legal and financial advisors. Billabong has entered into support agreements with major security holders in favor of the transaction representing approximately 56% of the outstanding securities.

 

“This transaction delivers a significant premium and an excellent liquidity opportunity to our shareholders that is unanimously supported by the company's board of directors,” said Lucio Di Clemente, chairman of the special committee. “Furthermore, Billabong will strengthen the company's future growth prospects and provide new business opportunities to the benefit of both our customers and our employees.”

 

“Billabong and West 49 have complementary skills and strengths,” said Baio, who founded West 49 in 1995. “We relish the opportunity of working more closely with each of Billabong’s brands and to drive further growth within the business.”

 

The purchase price represents an enterprise value of C$99.0 million (A$110.4 million) based on a fully diluted equity value of approximately C$90.2 million (A$100.6 million) and net debt of C$8.8 million (A$9.8 million) as of April  30, 2010. The offer represents an FY2011 EBITDA multiple of 10.4 times based on consensus EBITDA forecasts.

 

In a presentation to investors, Billabong listed a number of drivers behind the acquisition:


  • Increases the availability of Billabong's brands in the key action sports market of Canada;

  • Provides the ability to increase wholesale throughput of Billabong's existing brands via an expanded retail network. Currently across West 49's portfolio, Billabong has a brand share of approximately 15%;

  • Increases Billabong's participation in an important distribution channel including providing greater influence over the store environment and brand image presented to consumers;

  • Provides the opportunity to expand on West 49's current platform to enhance premium action sports retailing in the Canadian market;

  • Provides North American retail expertise and efficiencies for Billabong's expanded retail network;

  • Enhances retail presence providing Billabong with faster feedback on consumer trends and the ability to test product;

  • Provides increased branding opportunities, which in turn will drive demand;

  • Broadens Billabong's retail portfolio to better target key Canadian demographics via West 49's banners.