Sport Brands International, the parent company to Fila footwear and apparel, finalized a deal with Cloudveil that has been several months in the making. Cloudveil Mountain Works, Inc. is now a division of SBI with all Cloudveil management, customer service and sales personnel remaining in place. Financial details were not disclosed, but sources close to the deal said that it was in-line with the current market which has been producing deals at roughly 7.5x to 8x EBITDA or 1x to 1.2x sales.
Cloudveil has been growing rapidly since its inception, with 79% sales growth in 2003, and another 78% gain in 2004. At the close of 2004 the company had 260 specialty dealers with product in 300 doors across the country.
The B.OS.S. Report spoke with Cloudveils co-founder and global brand director, Stephen Sullivan, about the deal and he said, “I am as excited about this deal as I was the first day I walked into OR and we launched the company with a little 10×10 booth These guys see the vision Brian (Cousins, president of Cloudveil) and I had eight years ago sitting on the couch in Jackson Hole.”
“This is easily our best year ever in terms of sell-through Financing growth like we have experienced over the past few years is very difficult,” Sullivan told BOSS. “One of the best things for us in this deal is the product development and supply chain resources we will have available. This will allow us to bring better products to the market faster.” Cousins said that with the recent vertical launch of the brands ski wear collection, 2005 will be even stronger with an increased slope-side presence.
Two years ago, Cousins and Sullivan were facing a similar challenge. The Cloudveil brand was growing so rapidly that their bank could no longer finance the growth. At the time, Cloudveil had a few options-find a private equity firm to buy the brand, try to push on alone, or bring in some investors. The company chose the latter. A small boutique private equity firm founded by Jon Boris and Michael McGregor acquired a majority share of the company, providing enough capital to finance the brands expansion over the past two years. Boris and McGregor moved quickly to position the company for growth, focusing their efforts on improving the operations side of the business, including opening a customer service center in Denver and developing a new sourcing strategy.
Steve Wynn, president and CEO of SBI, told BOSS that it was SBIs hope that the company stays intact. The job they have done with the resources they had is phenomenal” he said. “Brands are successful when consumers can sense the passion for the brand. The Cloudveil team have that passion.”
Asked if SBI would be providing back-end services to the company, Wynn said that Cloudveil “manages just fine,” saying that they could provide more support as they grow and SBI strengthens the Fila operational model.
Sullivan sees international as the biggest opportunity for the brand. Cloudveil has been established in Japan for some time and has distribution agreements in Korea, the U.K., and Ireland, but the company has had a goal of establishing itself in the continental European Union for several years. “We have really just started to dabble in the international market – the EU is a key element for us,” said Sullivan. “Now, we have access to SBIs offices in Europe, and we will be attending ISPO with a booth for the first time this year.”
Wynn agreed that international is the biggest long-term opportunity for Cloudveil. “There is truly a global market for what they do,” he said.
SBI is clearly expecting continued strong performance out of Cloudveil, and has put incentive plans together for the management team that, “ make us want to stick around for the long haul,” according to Sullivan.
While exact growth targets were not disclosed, Sullivan said, “Were not saying were going to become a $300 million company, but we have very aggressive growth targets. Without an equity base we were forced to limit growth somewhat. We had already moved past the point of being a niche player and on to the stage where we were taking a little market share. This deal allows us to implement ideas and make a solid effort at taking some real market share This takes the handcuffs off.”
The team at Cloudveil did not jump on the first offer to acquire the company. Sullivan told BOSS that they were very patient with the process and looked for the right partner. “Over the past year we have been approached with countless offers,” he said. “We were very methodical in our approach. We looked hard at a lot of opportunities These guys (SBI) were very innovative in their approach, and they genuinely want us to maintain the authenticity of this grassroots brand.”
SBI has a well established international product sourcing infrastructure. One of the benefits this deal posed to Cloudveil is this easy access to new factories, but it appears that this may be a two-way street. “We are working with some of the best factories in the world right now. SBI was very happy with the way we have things set up,” Sullivan told BOSS. “I expect we will still be able realize some benefits from their sourcing structure, but I think they will be able to learn from our as well.”
Mr. Wynn said that the Cloudveil deal is another piece in SBIs mission to build a diversified portfolio that is synergistic in nature. He said they will be interested in making similar acquisitions that make sense for that strategy. “Well look at things across the sporting goods platform,” said Wynn. “Well look at other things that complement the current Cloudveil and Fila position in the market.” Asked if footwear could be part of the equation for Cloudveil in the future, Wynn quipped that its “in the back of our minds.”
Initial reactions from the industry were quite positive, with several web logs happy to see a positive move for such a core brand. However, some also mourned the loss of an independent player in the outdoor apparel game, equating SBI to a “mini VF.” Cousins and Sullivan are still in control of the brand, and SBI wants to keep it that way, so it seems unlikely that this “independent voice” will be lost at all.
