Just days after paying $40 million cash to buy a stand-up paddleboard (SUP) vendor, Vista Outdoor Inc. announced July 27th plans to acquire CamelBak Products LLC for 11.5 times its expected 2015 earnings before income taxes and depreciation.
If completed, the deal will give Vista Outdoor's an immediate earnings and margin boost. Despite a 360 basis point decline since 2012, CamelBak's gross margins hover above 40 percent, or more than twice those of VSTO's Outdoor Products segment and 1.5 times its Shooting Sports segment. In other words, VSTO could double spending on CamelBak's R&D, marketing and distribution and still come away with higher margins.
Longer term, CamelBak provides Vista Outdoor access to cyclists, hikers, runners, and other consumers served by REI and thousands of independent specialty retailers, including some who already carry its Bushnell optics brand. CamelBak, meanwhile, would gain access to millions of hunters already using Vista Outdoor's shooting sports gear, as well as significantly more sourcing and merchandizing muscle. From its headquarters in Utah, Vista Outdoor oversees manufacturing operations and facilities in 10 states, Puerto Rico, Mexico and Canada and has international sales and sourcing operations in Canada, Europe, Australia, New Zealand and Asia. CamelBak, which is based in Petaluma, CA, has 300 employees.
Under the terms of the transaction, Vista Outdoor will purchase CamelBak for $412.5 million, or roughly 2.6 times expected 2015 net sales, from Compass Diversified Holdings Inc. (CODI), subject to a customary working capital adjustment, utilizing cash on hand and borrowings under its existing credit facilities. Vista Outdoor anticipates closing the transaction within the next month. Once completed, CamelBak would be folded into VSTO's Outdoor Products business, which derived nearly half of its $451.5 million in sales in the fiscal year ended March 31 from the optics brand Bushnell.
The purchase price, net of certain tax benefits owned by CamelBak, represents a multiple of approximately 11.1 times CamelBak's expected calendar year 2015 EBITDA. That compares with a 5.5 2015 EBITDA multiple Vista Outdoor paid to acquire SUP maker Jimmy Styks earlier this month.
Vista and CamelBak declined to make executives available for interviews this week because Vista has entered a quite period ahead of its fiscal first quarter earnings release, which is due Aug. 13. However, CamelBak President and CEO Sally McCoy said in a statement that she is looking forward to working with Vista Outdoor to build CamelBak's international sales, which grew to 25 percent of its revenue in 2014 and are helping offset a rapid decline in U.S. military orders.
CamelBak got its start in the late 1980s when its founder stuck an IV bag filled with water in a tube sock and used it to hydrate hands free while riding in a 100-mile road cycling race. The company went on to create a hands-free hydration pack, which has been embraced by mountain bikers, hikers, long-distance runners, paddlers, hunters and U.S. Special Forces.
CamelBak remains the dominant brand by a large margin in both the reusable bottle market and the hydration pack market. The brand accounted for more than half hydration pack sales for the year-to-date period ended July 25 in the retail channels tracked by SSI Data and about a third of bottles sales. That was more than twice the market share of the next leading brand in either category.
Still, SSI data show CamelBak losing share to Osprey Packs in the pack category and Nalgene and Hydro Flask in the bottle category. A day after CODI agreed to sell CamelBak to VSTO, CamelBak announced it had settled a patent infringement dispute with Osprey.
CamelBak's military sales have also declined in recent years as the Obama Administration drew down U.S. forces in Iraq and Afghanistan. With help from CODI, CamelBak launched its Relay self-filtering water pitcher last year in a bid to break into a much larger market long dominated by Brita. The Relay was picked up by Target, but also contributed to a big increase in marketing costs that pinched margins.
Last year, CamelBak generated sales of $148.7 million, up 6.2 percent from 2013, but still nearly 9 percent below 2012 levels. Operating profits came in at $17.9 million, which was flat with 2013 and down nearly 30 percent from 2012. Operating margins reached 12.0 percent in 2014, down about 80 basis point from 2013 and down 420 basis points from 2012. At 40 percent, however, its gross margins remain well above the 25.4 percent reported by VSTO.
“The acquisition of CamelBak greatly advances Vista Outdoor's strategy to grow and strengthen our leading position in the outdoor recreation industry,” said Mark DeYoung, Vista Outdoor chairman and CEO “CamelBak fortifies our presence in the mainstream individual outdoor recreation market, creating an opportunity to increase the scale, reach and growth of several current offerings through an expanded global sourcing capability and a broadened retail distribution network. With limited overlap between our key customers, this acquisition creates significant cross-selling opportunities, increased channel presence and access into expanded domestic and international markets. As a market leader and preferred partner, Vista Outdoor can leverage the technical expertise of CamelBak to deliver innovative solutions and quality product offerings that will create value for our shareholders and customers.”
Vista Outdoor intends to refinance the expected borrowings under its credit facilities with long-term debt financing. Morgan Stanley, which served as its transaction and financial advisor throughout negotiations with CODI, has committed to providing VSTO $50 million of secured debt financing to provide additional flexibility pending completion of long-term financing.
CODI, meanwhile, expects to clear a profit of $140-to-$160 million on its 89.9 percent stake in CamelBak, which it acquired in August, 2011 for $211.6 million.
