GSI Commerce to Acquire Fanatics; Q4 Sales Up 25%

Jacksonville, Fla.-based Fanatics, with about 400 employees, operates over 250 e-commerce websites, including footballfanatics.com and over 60 e-commerce stores for collegiate and professional sports partners and media organizations. The company will combine Fanatics with GSI's online licensed sports merchandise business, which operates the official e-commerce websites for NFL, NBA, NHL, MLB, NASCAR, and ESPN. As of Dec. 31, Fanatics had $41.8 million in cash and no debt, and its revenue for 2010 was $186.3 million with operating income at $23.8 million.

Fanatics was founded in 1995 by Mitchell Trager and Alan Trager, who is the CEO and will join GSI. The Trager family owns about 63% of Fanatics. Insight Venture Partners owns around 30% of the company.  The Trager family has agreed to a four-year transfer restriction period with 25% becoming unrestricted each year on the shares it is receiving under the agreement.

“The combination of Fanatics and its 400 employees with our licensed sports merchandise business, which had net revenues of approximately $300 million in 2010, will enable us to better serve our partners and fans, and together the combined company will be a leader in the estimated $15 billion licensed sports merchandise market,” said Michael Conn,  GSI'S EVP of finance and CFO, on a conference call. “With more than 50% of its revenues coming from college merchandise, Fanatics is a perfect complement to GSI's focus on licensed sports merchandise for the professional sports leagues. In Fanatics, we have found a company and management team that shares our passion for the licensed sports merchandise industry and our vision for the growth opportunities that lie ahead.”

GSI will finance the deal with $171 million in cash and $106 million in common shares – about 4.8 million shares valued at $22.20 each. As part of the deal, GSI entered a new five-year, $400 million credit agreement to replace its existing $150 million revolving credit facility, contingent on the purchase of Fanatics. The deal is expected to be accretive to adjusted earnings in 2011.

GSI also last week reported that sales grew 24.8% in the fourth quarter, to $537.0 million. Product sales grew 25.4% to $318.7 million. Service fee revenues increased 24.0% to $218.4 million.
Impacted by special charges, earnings for the period fell to $15.9 million, or 23 cents per share, from $23.6 million, or 38 cents, in the year-ago period. Excluding charges for goodwill and intangibles related to its Rue La La acquisition and the company’s international e-commerce operations, operating earnings were up 26.8% to $59.6 million.

For the full year, revenues jumped 35% to $1.36 billion. The net loss grew to $36.5 million after the charges from $11.0 million a year ago.
For Q1, GSI expects net revenues of approximately $310 million and consolidated NGIO (non-GAAP income from operations) of approximately $9.0 million, including $18 million of earnings from its core businesses and a loss of $9.0 million from its emerging businesses. For 2011, GSI expects revenues of $1.8 billion and consolidated NGIO of approximately $190 million, including $200 million of earnings from its core businesses and a loss of $10 million from its emerging businesses.