Fox Factory Holding Corp. took decisive action to fix an unexpected deterioration in its mountain biking sales last week by signing a definitive agreement to acquire all the assets of the Race Face and Easton Cycling businesses, which design, manufacture and distribute high-performance components for the global OEM and aftermarket sectors.
If consummated, the deal would greatly broaden the components FOXF can
sell to mountain bike (MTB) manufacturers, who now only buy forks and
rear suspension systems from the company. The acquisition would also
transform FOXF into a multi-brand components supplier and mark its entry
through Easton Cycling into the road bike business.
Race Face Performance Products Inc makes mountain bike (MTB) cranks, bars, stems, and seat posts and offers a full line of MTB apparel, accessories and protective gear, while Easton Cycling designs and manufactures mountain biking (MTB) and road bike wheels for OEMs and the aftermarket. Both companies are based in Vancouver, B.C.
While FOXF no longer breaks out its sales by segment, Mountain Bike products accounted for 60 percent of its sales as recently as 2012. FOXF reported in November that its MTB sales were down 2 percent through the nine months ended Sept. 30, compared with 14.4 percent growth reported for the first nine months of 2013. The company attributed the sharp reversal to rising competition and slower growth of MTB sales generally.
“This transaction demonstrates the execution of our strategic initiatives to increase Fox’s product penetration into both existing and adjacent product categories to help drive our bike sales and profitability long-term,” said FOXF’s CEO Larry L. Enterline.
Race Face/Easton President Chris Tutton said FOXF’s operations, marketing and engineering support will enable the Vancouver, BC-based company to innovate faster. Race Face Performance Products already distributes its products in more than 40 countries.
Financial details
The agreement calls for FOXF to acquire substantially all the assets of Race Face Performance Products Inc and 0999324B.C. Ltd through for approximately $CAD30.2 million. The transaction was financed with debt and includes a potential earn-out opportunity of up to a maximum of $CAD17.4 million payable over the next two fiscal years contingent upon the achievement of certain performance-based financial targets. On a combined basis, Race Face/Easton generated approximately $CAD23.6 million ($22 mm) in unaudited net sales and unaudited Adjusted EBITDA of approximately $CAD4.3 million ($4 mm) in the fiscal year ended Oct. 31, 2014.
FOX expects Race Face/Easton revenue growth in the high single digit range, and expects to invest in Race Face/Easton to strengthen its infrastructure and maximize the long-term potential of the business. The company plans to provide 2015 guidance along with its fourth quarter and fiscal 2014 earnings announcement. The company anticipates the transaction to close by the end of 2014.
FOXF reported sales grew $25.1 million, or 12.1 percent to $232.6 million for the nine months ended Sept. 30, 2014 as 40.8 percent growth in powered vehicle sales more than offset the 2.0 percent decline in MTB sales. Most of the growth came from the company’s acquisition of Sport Truck USA, which distributes lift kits and other aftermarket suspension solutions.
Headquartered in Scotts Valley, CA, FOXF designs and manufactures high-performance suspension products primarily for mountain bikes, side-by-side vehicles, on-road and off-road vehicles and trucks, all-terrain vehicles, snowmobiles, specialty vehicles and applications, and motorcycles.
