Varsity Brands, Inc., the parent of BSN Sports and Varsity Spirit, announced a proposed $400 million fungible add-on to its first-lien term loan facility to partly finance a potential undisclosed acquisition of a complementary business to BSN Sports with a heavy presence in soccer.
A BSN Sports spokesperson told SGB Media they could not provide additional information at this time.
The debt extension and potential acquisition were noted in reports from both Moody’s Ratings and S&P Global Ratings..
Moody’s Affirms Varsity Brand’s Debt Ratings
Moody’s reported Varsity Brands is upsizing its $2.369 billion term loan and issuing a fungible incremental $400 million tranche, which along with rollover equity, $60 million of incremental borrowing on the ABL (asset-based lending) facility and $45 million of balance sheet cash, “will be used to fund the acquisition of a target company (”Target”) that sells sports apparel and equipment in the club/select channel.”
Moody’s said Varsity Brands is seeking to acquire and sell uniforms, apparel and equipment to private club teams in the U.S. Sales to team accounts for roughly 70 percent of Target’s sales. The company is primarily focused on soccer-related product but also has a smaller apparel business that caters to other sports.
Moody’s said, “The acquisition provides an opportunity for Varsity to expand its own presence in the private sports club market, an area currently underpenetrated at BSN. Target is largely focused on the larger premier youth clubs in the US. We believe that Varsity will be able to expand Target’s offering more broadly to small clubs across the country by leveraging its large sales force and distribution network. The participation and popularity of soccer are growing in the U.S. and should support sales growth. We also expect Varsity will improve the EBITDA margin at the acquired business by contributing its own manufacturing and distribution advantages and by providing access to its licensing partnerships with leading apparel companies. We expect the combined company to benefit from revenue and expense synergies that are reasonable in scope but will require good execution to realize. Target also sells soccer apparel and equipment directly to consumers through its digital offerings. The expansion into ecommerce retail modestly diversifies Varsity’s business outside current school and club focus.
Moody’s said the transaction is credit negative in the near term because it will increase leverage and interest expense by roughly $28 million. Moody’s said, “Integrating the Target business into Varsity carries execution risk and could impact financial flexibility if the company does not realize expected earnings growth.”
Moody’s nevertheless affirmed Varsity’s ratings because the company “continues to generate good free cash flow, the acquisition strengthens Varsity’s business profile, and we expect strong operating performance will position the company to quickly reduce leverage back to a level we view as appropriate for the rating.”
Moody’s wrote, “The acquisition increases Varsity’s revenue base and provides diversification and market penetration into the private club sport channel. The acquisition aligns with the company’s strategy to expand its customer base and increase its market penetration both organically and through acquisitions, invest in digital sales platforms to promote customer satisfaction and growth, and expand higher-margin private label products that are contributing to EBITDA margin improvement. We expect debt-to-EBITDA leverage will decline to slightly below 6.0x over the next 12-18 months from 6.6x for the 12 months ended September 2025 and pro forma for the acquisition of Target. We anticipate strong free cash flow will exceed $150 million over the next 12 months, up from an expected $70-80 million for full year 2025 (Moody’s adjusted). Free cash flow in 2025 included a sizable litigation settlement payment made in the first quarter. We do not anticipate litigation payments to be material going forward.”
S&P Affirms Varsity Brands’ Debt Ratings
S&P likewise affirmed its ratings on Varsity Brands following news of add-on debt issuance.
S&P said, “We view the acquisition as a positive in terms of growth and diversification as it will improve Varsity’s position in a complementary segment in which it is currently under-indexed. Additionally, Varsity currently has limited scale in the club and select space, and the acquisition of the Target, which has a well-established footprint in this space, will meaningfully enhance Varsity’s position. Moreover, we believe Varsity could leverage the Target’s strong presence in club into other sports, providing further diversification. We also expect Varsity to realize cost synergies through the integration of shared services and supply chain optimization by leveraging its larger scale following the transaction.
“That said, the modest increase in scale does not affect our view of its business risk profile. The Target’s revenue and EBITDA base represent about 9 percent and 7 percent of Varsity’s existing business, respectively. Varsity does not anticipate material integration risks, as the Target’s existing senior management will remain invested in the business through rolled-over equity, and its sales is managed by a small team of territory managers (as opposed to Varsity’s larger salesforce) who are largely tenured in the business.
“We expect pro forma leverage to be elevated at approximately 6.6x following the acquisition. However, we anticipate gradual deleveraging over the coming years as the company realizes run-rate benefits from the acquisition and continues to expand organic earnings. We estimate Varsity ended 2025 with adjusted leverage of about 5.9x, slightly higher than our prior 5.7x estimate, driven by incremental ABL borrowings to fund acquisitions during 2025.
“We estimate Varsity’s revenue and EBITDA grew approximately 8 percent and 10 percent in 2025, respectively, with support from continued growth at BSN. This reflects strong sports participation trends, growth in higher-margin private label and licensing businesses, and strong technological and supply chain capabilities. The company’s Spirit segment also expanded, through higher apparel sales volume and increased camps and competition registrations. We expect the company to sustain mid-single-digit organic revenue growth, which should support gradual deleveraging.
“That said, revenue remains meaningfully exposed to the discretionary nature of BSN’s sports apparel and equipment business, as well as Spirit’s cheerleading uniforms, camps, and competitions business. In addition, the company relies heavily on school athletic budgets and parent booster clubs for revenue growth. While our economists forecast U.S. real GDP growth of 2 percent in 2026, we believe consumers could rein in spending should economic conditions weaken.
“We expect Varsity will remain highly acquisitive, though not at a scale comparable to this transaction. We also expect the company to continue generating positive FOCF net of annual capital expenditures. Varsity spent approximately $90 million in 2025 on acquisitions, and we anticipate acquisition spending will remain at similar levels in 2026, in addition to the acquisition of the Target. We expect continued expansion through bolt-on acquisitions of smaller sports equipment and apparel dealers and businesses that supply dance studios, consistent with the company’s 2025 acquisition activity.”
Image courtesy Varsity Brands
