Gap, Inc., has agreed to acquire Athleta, Inc., the women’s sports and active apparel catalog company, for about $150 million in cash. The acquisition will help Gap break into the $31 billion women’s active apparel sector in the U.S., which is drawing attention thanks to the stellar performance of lululemon athletica. The deal marks the first acquisition for Gap since the company bought Banana Republic in 1984.
Gap is acquiring Athleta from Blue Highways Holdings LLC, which acquired a majority interest in Athleta in January 2006.

Gap will eventually make Athleta merchandise available on its new website, which allows consumers to click through all of its labels – Gap, Old Navy, Banana Republic and Piperlime – and pay one shipping fee. Gap’s online sales rose to $905 million in 2007, from $595 million in 2005, a 52% increase. Gap is also considering giving Athleta space in some of its brands’ retail outlets.

As a privately held company, Athleta does not disclose sales or earnings, making it difficult to know what multiple Gap paid for the brand. However, if lululemon  is any indication, Gap would have paid a big premium. While LULU’s stock is trading 60% off its 52-week high, the company is still valued at $1.6 billion, or 22 times EBITDA and nearly five times sales.

“The women’s athletic apparel segment is a very compelling merchandise category, said Richard Jaffe, an analyst with Stifel Nicolaus & Co. The acquisition helps Gap “gain easy entry into this attractive market.”

Founded 10 years ago, Athleta, based in Petaluma, CA, sells  apparel for a variety of sports, including yoga, running, skiing, snowboarding and surfing. About 90% of its sales are from Athleta branded product. Although e-commerce now accounts for more than half of overall sales, Athleta delivered 13 million catalogs last year and plans to mail 21 million this year. By contrast, Vancouver, B.C.-based lululemon has grown by clothing influential instructors at yoga studios and gyms before opening showrooms and stores in their neighborhoods. LULU plans to have 35 stores open by year end.

Athleta CEO Joe Teno  will stay on with the company as president under Gap and report to Toby Lenk, the president of Gap, Inc., direct division. Gap officials said the company intends to retain Athleta’s management team. Athleta has 250 employees.

“Were thrilled to become part of this great company and to have found a partner that supports our vision for Athleta,” said Teno. “With Gap, Inc.’s e-commerce platform and iconic brands, more customers will learn about Athleta as we continue to provide our existing customers with the great products and service they’ve come to expect from us.”

“We were quite pleased by the amount of interest we had from the market,” said Bruce Willard, a manager with Blue Highways. “We believed there was a lot of growth left on the catalog and Internet side [that Blue Highway could develop,] or it was time for someone else to take the ball and go the next step. Gap had leverage capital and retail experience. It was a good sale for us, a great buy for them.”

Willard said he had no insight into the Gap’s sales strategy, but could not imagine them shutting down the catalog.  “I would say in the near term, the catalog will continue to be the driving force of the business,” he said. “It’s highly successful… and very effective. I would say the Internet would not exist without the catalog.”