By David Clucas
Cherokee Global Brands’ (Nasdaq:CHKE) proposed deal to buy Hi-Tec Sports International Holdings B.V. for $98.5 million will most significantly include selling off the outdoor footwear brand’s wholesale operations to licensed partners.
With the move, off of which Cherokee expects to make $62 million from the license proceeds to help pay for the acquisition, Hi-Tec would join the parent company’s other active lifestyle marks, including Tony Hawk, Sideout and Everyday California, as licensed brands versus wholly owned and operated ones.
Cherokee officials said they have secured license agreements for the brand’s core footwear categories “that will strengthen and expand the brand’s presence in the United Kingdom, Continental Europe, the United States, Canada and South Africa.” It will also maintain distribution agreements throughout the world, including South and Central America and Asia.
While Hi-Tec’s headquarters will remain in Amsterdam and its founder’s son, Ed Van Wezel, will remain CEO of the company, there’s no question that the deal means a strategic pivot for the brand, whose future direction and health will largely depend on who the licensed partners are. Licensed footwear deals are not uncommon, even in the outdoor industry. For example, Patagonia once licensed its footwear operations to Wolverine Worldwide.
Interestingly enough, Hi-Tec may remain most true to its founding in the South Africa market. That’s where Frank Van Wezel, who founded the company in 1974, struck a deal with Cherokee to become one of those licensees.
Cherokee officials expect the deal to add approximately $19 million of licensing revenue and $7 million in adjusted EBITDA during first full fiscal year post-closing. In 2015, Hi-Tec recorded revenue of approximately $143 million on worldwide wholesale sales sold under the Hi-Tec and Magnum brands. In addition to the funds from selling off the wholesale operations, Cherokee will fund the purchase through cash on hand and a new credit facility from Cerberus Business Finance LLC.
“The acquisition of the Hi-Tec and Magnum brands aligns with our strategic focus of diversifying and building upon our active lifestyle portfolio as we continue to grow our global footprint,” stated Henry Stupp, chief executive officer of Cherokee Global Brands. “Hi-Tec’s high-equity brands will build upon our presence in the active, outdoor markets, and we are excited by the potential to further expand these brands into additional categories including apparel, accessories, wearables, outdoor products and more.”
Photo courtesy Hi-Tec
