Finding success with its acquisition of Hydro Flask in 2016, Helen of Troy hopes to repeat the formula with its $414 million purchase of Osprey Packs.

“We believe this acquisition is a classic story of two companies that are better together,” Julien Mininberg, Helen of Troy’s CEO, told analysts on a call. “Combining the capability, authenticity and credibility of this proven and highly respected outdoor pioneer with our global footprint and scalable global shared services creates opportunities for new efficiencies and growth. Through Osprey’s complementary offerings, we can now serve even more passionate end-users in the large and growing outdoor adventure category.”

For Helen of Troy, the acquisition amplifies and diversifies its outdoor offerings that the Hydro Flask brand mainly marks. The OXO housewares brand also dabbles in the outdoor space. The acquisition will also further diversify its overall mix, including Vicks, Braun, Honeywell, PUR, Hot Tools, and Drybar.

Said Mininberg, “We will add an iconic, nice leadership brand that complements our world-class portfolio.”

Outdoor Adventure Opportunity 
Mininberg primarily talked up the outdoor opportunity and the potential to build on Osprey’s leadership position in the outdoor space.

Founded in 1974, Osprey holds the number one U.S. share position in the technical packs, travel pack and everyday pack segments, according to third-party data sources. It has the number two share position in the hydration pack segment and holds the number one specialty pack brand position in several European markets.

The overall total addressable market for technical travel and daypacks is estimated at approximately $12 billion, noted Mininberg.

“This profile aligns well with our acquisition criteria of adding brands that complement our portfolio and earned and maintained a leading position,” said Mininberg. “Like so many Helen of Troy brands, Osprey has focused single-mindedly on delighting consumers by delivering superior consumer-centric designs, innovative features and construction, outstanding material quality and a focus on sustainability, all backed by its legendary All-Mighty guarantee. Outdoor enthusiasts around the world admire the brand and all that it stands for. Outdoors is a key strategic area for Helen of Troy, providing a large and growing market that capitalizes on the multi-generational wellness trend.”

Accelerate International Growth
The acquisition also increased Helen of Troy’s international presence as accelerating global expansion was a significant component of Phase II of Helen of Troy’s Future Transformation plan. Approximately half of Osprey’s sales are outside of the U.S.

“We believe Osprey and Hydro Flask can make for a powerful combination that provides further international presence and additional distribution opportunities that can benefit both brands and consumers,” said Mininberg. “Osprey’s significant international presence will also further diversify our brand portfolio outside of the U.S. and its focus on EMEA and the Asia Pacific matches our focus in those regions.”

Mininberg said the company sees Osprey overall “well-positioned to capitalize on market growth.”

Although COVID hurt the brand’s calendar year 2020 sales, Osprey is projected to grow over its 2020 base and deliver net sales revenue in the range of $155 million to $160 million in the calendar year 2021, only slightly below pre-pandemic sales levels in the calendar year 2019.

Brian Grass, CFO, said Helen of Troy expects Osprey to return to the pre-pandemic high-single-digit compound annual growth rate (CAGR) throughout the remainder of Phase II transformation plan (2000 to 2024) and expects the brand to be immediately accretive to a consolidated and houseware segment’s long-term net sales growth rate.

Sales And Profit Synergies 
Regarding synergies, Mininberg expects Helen of Troy’s shared services platform will deliver additional scale, IT systems and on-the-ground capabilities in key functions and regions to Osprey.

On the design and operation side, Osprey’s design center and sourcing footprint in Vietnam will expand Helen of Troy’s reach across durable and soft goods. Adding Osprey’s Vietnam operation will diversify Helen of Troy’s sourcing mix and is expected to accelerate further the company’s diversification work underway in Vietnam and in other parts of Southeast Asia.

At the business unit level, adding design and manufacturing capabilities around packs, totes, camp, storage, and cases complements the hard goods durables’ focus of Hydro Flask and OXO. While OXO is traditionally known for its indoor products, its lineup now includes outdoor products at retailers such as REI, “with more on the way,” said Mininberg.

In marketing and sales, Osprey and Hydro Flask complement one another by sharing distribution across Amazon, Dick’s Sporting Goods, Cabela’s, REI, and similar distribution partners.

Osprey further has a “significant direct-to-consumer business” that should “scale faster and more profitably” on the Helen of Troy DTC platform.

“We believe the sales channel synergy opportunity between Hydro Flask and Osprey can be even more significant in EMEA, where Osprey’s large footprint can be beneficial for both brands,” said Mininberg.

He said both Osprey and Hydro Flask share a focus on the outdoor enthusiast while Osprey, Hydro Flask and OXO all “concentrate on consumers looking to elevate their lifestyle in the higher quality market segments that also tend to have higher margins.”

Osprey To Join Housewares Segment 
Once the acquisition is completed, Osprey’s employees and leadership team will become part of Helen of Troy’s houseware’s segment, including Hydro Flask and OXO. Mininberg said, “This will bring continuity, and the Osprey leadership team alone would add more than 150 years of additional outdoor experience.”

He noted how the 2016 Hydro Flask acquisition was a “catalyst for us to evolve housewares into a multi-brand segment” for the company. Five years after the acquisition, four of the seven members of Hydro Flask’s senior leadership team joined Helen of Troy through Hydro Flask.

Mike Pfotenhauer, Osprey’s founder, co-owner and director of innovation, will remain a consultant next year. Said Mininberg, “We look forward to working with him and wish him and his wife, co-owner and board member, Diane Wren, all the best as they transition to retirement.”

The Osprey team will continue to operate from Cortez, CO; Ogden, UT; Poole in England; and Ho Chi Minh City in Vietnam.

“Financially, we’re excited about the expected accretion to our top and bottom-line growth rates from the acquisition,” said Mininberg. “Osprey comes with a very exciting multi-year new product pipeline that’s ready to extend its track record of product design, innovation and quality across existing and new categories. We plan to further capitalize on growth opportunities by injecting additional investments into marketing and direct to consumer.

Helen of Troy also plans to improve Osprey’s IT system capabilities while lowering its back-end costs over time through Helen of Troy’s global shared services and leveraging the scale of buying power for commodities like sea freight and land freight.

Shared Values
Beyond the complimentary business fit, a close alignment in areas such as culture and ESG is expected to benefit.

“Osprey’s values are very similar to Helen of Troy, which will help people continue to thrive in our proven culture and to help ensure we preserve the authenticity of the brand,” said Mininberg. “Regarding ESG, Osprey has a long-standing commitment to environmental and social principles. This is highly visible in the way its products are designed and produced, reducing its impact on the environment. This is important to Osprey’s customers and consumers; it’s important to us and to our stakeholders. On the social side, it cares for its employees as well as the communities in which it operates, further reflecting the aligned ESG philosophy between Osprey and Helen of Troy.”

The transaction is expected to close before calendar year-end 2021, subject to customary closing conditions, including regulatory approval.

The total purchase consideration is expected to be approximately $414 million in cash, including an estimated $6 million favorable customary closing net working capital adjustment. Grass said the working capital adjustment primarily reflects lower than average current levels of inventory as a result of COVID-restriction on Osprey’s Vietnam supply partners during the fall of calendar 2021.

Grass said, “These restrictions have largely been removed and inventory levels have begun to improve as factories have resumed production in recent months. Osprey has finished goods inventory on hand at suppliers and returning to normalize inventory level is now more dependent on accessing freight and logistic carrier markets.”

The net purchase price implies a pre-synergy multiple of less than 13.5x estimated calendar year 2022 adjusted EBITDA, which compares favorably to Helen of Troy’s current EV/TTM adjusted EBITDA multiple of approximately 17.5x. Grass said that based on the third party sources, the company believes the multiple “is in line with recent comparable sized transactions for businesses in the outdoor industry.”

The acquisition is expected to be immediately accretive to consolidated gross profit margin, adjusted diluted EPS, adjusted diluted EPS growth rate and cash flow from operations. Over time, the acquisition is expected to also be accretive to consolidated adjusted EBTIDA and operating margin. Supply chain costs headwinds in calendar year 2022 and investments in marketing and system upgrades in calendar years 2022 and 2023 are expected to result in adjusted operating margin rates that are in line with a comparable consolidated margin expected in those years.

Photo courtesy Osprey