It was a busy and a good week for the outdoor industry with five acquisitions, including two that could help restore the luster of authentic brands hindered in recent years by botched acquisitions. Five deals were done in total and four appear to be legitimately strategic. The deals came in several flavors, including a PE firm selling a brand to a public company, a public company selling a brand back to the founders with PE help, a PE firm selling a company to another PE company and a public company acquiring a retailer.
The deals reflected both lower valuations for companies in the outdoor space and a growing appetite for specialty retail among companies eager to diversify their customer base beyond mega retailers. In most cases the acquirer offered extensive offshore sourcing, distribution and other back office support in exchange for an opportunity to add an authentic outdoor brand.
Burton Adds Skateboarding DNA to its Portfolio Burton Snowboards was one of the authentic snow sports brands to add to its portfolio last week. The company, which has said it plans on becoming a player across all board sports, acquired skateboarding company DNA Distribution. DNA will continue to operate out of Dayton, OH while CEO and Co-Founder Chris Carter will continue to oversee the companys brands, which include Alien Workshop, Habitat and Reflex Bearings. Terms of the deal were not disclosed.
The deal marks Burton's second investment outside snowboarding since July 2006, when it acquired the assets of Channel Islands Surfboards. In that deal, the plan was to keep the two brands separate, but look for back-end synergies in sourcing, purchasing, international distribution and R&D. The DNA deal completes Burton's strategy of having a presence in the three major board sports: snowboarding, surfing and skateboarding, said CEO Laurent Potdevin.
Dorel Acquires Cannondale, Set Sites on IBD Channel…The week kicked off with Dorel Industries' announcing it would pay Pegasus Capital Advisors between $190 million and $200 million to acquire Cannondale Bicycle Corp. Dorel formed the Cannondale Sports Group, which will include the Cannondale, Sugoi and GT brands, and said it will be the crown jewel of a new Independent Bicycle Dealer Division focused on selling premium products through the independent channel. Cannondale's president and CEO, Matt Mannelly, will now report to Jeff Frehner, who has moved from the top position at Dorel's Pacific Cycle to serve as president of the Cannondale Sports Group. Frehner will apparently be spending much of his time sizing up other premium brands in a bid to displace Specialized and Trek and to establish Cannondale Sports Group as the number one player in the IBD channel.
Cannondale will increase Dorel's earnings per share in the 9 cents range this year, the company estimated. The higher margin IBD business will complement Dorel's Pacific Cycle business, where the loss of a single retailer can materially affect sales. Dorel acquired Pacific, which makes the Schwinn, Mongoose, GT, Roadmaster, InStep, Pacific and Murray brands, for $310 million in 2004. That business will now be a stand-alone division focused on mass market retailers. Schwartz and Cannondale executives stressed that they would keep the IDB and mass market businesses separate. “
You are not going to find a Cannondale brand in the mass market,” Dorel CEO Martin Schwartz said on a conference call with analysts after the deal was announced. “We are going to keep what you guys in your industry call a Chinese wall between the two of them. There will be no crossovers.” Schwartz said that by being able to offer independent dealers Cannondale, GT, some Schwinn bikes and Sugoi apparel products, “we will be able to become a lot more important to the dealers.”
Whether Cannondale frames will lose their “Handmade in the U.S.” emblems remains to be seen. Part of Cannondale's cache has been its status as one of the few U.S. vendors still making bicycle frames in the U.S. “We're going to be looking at that and balancing between what is made in China or in Taiwan and what will be made in the U.S.,” Schwartz said.
At least one Cannondale dealer welcomed the news. “In a way, it boosts my confidence in them long term, because they want to step up and compete with Trek and Specialized, which means they will have to devote a lot of resources,” said one dealer. “I'm pretty psyched for them really.”
All in all, a pretty good outcome for a company that Pegasus Capital Advisors bought out of bankruptcy five years ago.
Apparel Company Sees Upside in Specialty Retail…Squeezing in one more deal was Nitches, a public company that acquired Midwest retailer Backwoods Equipment Company. Austin, TX-based Backwoods operates eight outdoor specialty stores and a growing adventure travel business.
The deal was structured as a stock swap with Backwoods becoming a wholly-owned subsidiary of Nitches.
San Diego-based Nitches is a wholesale importer and distributor of clothing and home décor products, which it sources overseas. The company has acquired three apparel businesses since late 2005. The Backwoods acquisition marks Nitches first retailing venture and signals a broader move into specialty retailing.
