The Finish Line Inc. said it reached an agreement to sell JackRabbit, its unprofitable specialty run business, to CriticalPoint Capital, LLC, a Los Angeles based private investment firm.
Terms of the deal weren’t disclosed.
The deal is expected to close by the end of its fiscal fourth quarter, subject to customary closing conditions. On November 14, Finish Line said it had hired Peter J. Solomon Co. as its financial advisor to help explore a sale. At the time, Finish Line also said it was taking a goodwill impairment charge in its third quarter of approximately $44 million to write off JackRabbit, formerly called Running Specialty Group (RSG).
The business generated about $90 million in sales in the fiscal year ended February 2016, accounting for 4.8 percent of the company’s total sales.
“As we exit the running specialty business, we dedicate our entire focus to serving our core Finish Line and Finish Line Macy’s customers and driving profitable results that provide return to our shareholders,” said Sam Sato, CEO of Finish Line. “The JackRabbit team – both in their main offices in Denver and throughout the field – genuinely work hard to serve running and fit enthusiasts within their local communities. With CriticalPoint retaining those employees, they will continue to deliver a high level of customer service and offer industry leading branded footwear, apparel and accessories.”
Under the terms of the definitive agreement, Capital will become the owner of all 65 JackRabbit stores that currently operating under several banners. Banners also include The Running Company, Run On!, Blue Mile, Boulder Running Company, Roncker’s Running Spot, Running Fit, VA Runner, Capital RunWalk, Richmond RoadRunner, Garry Gribble’s Running Sports, Run Colorado, Raleigh Running Outfitters, Striders and Indiana Running Company. CriticalPoint Capital will also assume all JackRabbit leasehold interests and lease liabilities, intellectual property and the JackRabbit trademark and name. JackRabbit staff will be employed by CriticalPoint Capital.
With exiting the JackRabbit business, Finish Line expects to incur a pre-tax charge in the fourth quarter of approximately $33 million to $36 million which includes cash costs of approximately $11 million to $12 million and non-cash charges for the remainder related to the net assets of JackRabbit as well as certain other exit costs. The costs to exit the JackRabbit business and the resulting tax benefits will be reported in discontinued operations. The company also expects to realize a cash tax benefit on the JackRabbit disposition totaling approximately $29 million to $31 million which includes a benefit associated with the projected fourth quarter pre-tax loss and the benefit associated with the goodwill impairment charge of $44 million recorded during the third quarter. A portion of the cash tax benefit is expected to fall in the fourth quarter of the company’s current fiscal year with the remaining portion in its fiscal 2018.
The acquisition eases fears that the chain would face liquidation with no logical strategic buyers for the business.
Finish Line formed the Running Specialty Group (RSG), the predecessor name to JackRabbit, in 2011 after purchasing an 18-store chain for $8.5 million operating under The Running Company banner. It subsequently acquired multiple run specialty stores across the country to create the second-largest run specialty group in the U.S. after Fleet Feet Sports. Its goal was to with a bold ambition to consolidate the run specialty channel.
In March 2015, Finish Line put the brakes on any further expansion of the specialty business while it focused on improving the segment’s profitability.
JackRabbit’s struggles arrived amid a softening observed in the run specialty channel. Contributing factors to the slowdown included over-saturation overall in the channel, a fashion shift away from running styles, the end of the minimalist trend and declining participation in marathons and half-marathons in favor of mud runs, color runs and other shorter, experiential events.
Finish Line also faced challenges in its attempts to operate a chain of run specialty stores from a national level. Local ownership in particular is seen as key in supporting local run communities and motivating store staff.
CriticalPoint Capital was founded in early 2013 and has made two acquisition in the active lifestyle space, Organized SportsWear and My School Things. Both make physical education uniforms with customized silk screen printing and embroidery. In 2014, it acquired Electronic Materials Division (EMD) from the Rogers Corp.
It also has an M&A advisory business, Capital Partners. In 2014, it advised Altamont Capital on its purchase of Brixton, the surf lifestyle brand. The CriticalPoint investment team is led by Matt Young, founder and CEO, and Brad Holtmeier, EVP. Including
some transactions may have been executed at a prior firm, Capital Capital’s senior team has executed over 55 M&A transactions with cumulative transaction values in excess of $3.5 billion.
Photo courtesy JackRabbit