JD Sports said it has acquired Shoe Palace for $325 million in a move that will expand its footprint on the West Coast. The U.K.’s largest sneaker chain marked its entry in the U.S. with the acquisition of Finish Line in 2018.

Based in San Jose, CA, Shoe Palace was established in 1993 by the Mersho family and currently has 167 stores, the vast majority of which trade under the Shoe Palace banner. More than half of the stores are located in California, although there is also an established retail presence in Texas, Nevada, Arizona, Florida, Colorado, New Mexico, and Hawaii with the store network supported by a developing e-commerce platform.

In the year ended December 31, 2019, Shoe Palace generated revenue of $435 million. Shoe Palace is operated by four brothers from the Mersho family who head up the various operating functions across the business.

Total cash consideration for the acquisition of Shoe Palace, subject to customary cash/debt and working capital adjustments, is $325 million, of which $100 million has been deferred and will be paid on various dates over the next 12 months. This cash consideration is being funded from JD Sports’ cash resources and existing bank facilities. In addition, the Mersho Brothers have also been issued with equity in Genesis Holdings Inc, JD Sports’ existing wholly-owned intermediate holding company in the U.S., such that they will own 20 percent of the enlarged group in the U.S. The initial fair value of this equity consideration is approximately $356 million. Additionally, a number of put and call options, to enable future exit opportunities for the Mersho Brothers, have also agreed to commence after the end of the financial year ended February 1, 2025.

The acquisition of Shoe Palace complements JD Sports’ ongoing positive developments from the existing Finish Line and JD banner in the United States, which includes the recent opening of JD’s flagship store in Times Square, NY. In particular, this acquisition will significantly increase JD Sports’ presence on the West Coast of the United States and strengthen its connection with the Hispanic and Latino consumers, who represent a significant proportion of Shoe Palace’s customer base.

The Mersho Brothers will continue to manage the Shoe Palace business although the intention is that from next year the JD Finish Line and Shoe Palace teams will begin to share ideas and best practices.

In the year ended December 31, 2019, Shoe Palace delivered a profit before tax of $52 million. The gross assets in the Shoe Palace audited balance sheet at December 31, 2019 were $197 million.

Peter Cowgill, executive chairman, JD Sports Fashion Plc, said: ”We are delighted to have completed the acquisition of Shoe Palace. The Shoe Palace team are ambitious, have great energy and pride themselves on their consumer connection and we welcome them to the Group. We are confident that our combined fascias will provide us with the flexibility and expertise to fulfill our mutual ambition of becoming a prime customer destination for sneakers and lifestyle apparel in the United States.”

George Mersho, CEO of Shoe Palace added, “We could not imagine a better way to continue to build on the legacy of our family business. Through this combination with JD and Finish Line in the US, we have gained a strong global partner. We look forward to being part of the JD family and continuing to serve our customers and communities for many years to come.”

In the year ended February 1, 2020, JD Sports’ sales in the U.S. were £1.6 billion ($2.2 bn) from Finish Line and JD, The company’s U.S. operations finished the year with 508 stand-alone Finish Line locations, 295 Finish Line in-store shops inside Macy’s, and 11 JD locations. Total global revenue for JD Sports in the year was £6.11 billion ($8.2 bn).

Photo courtesy Shoe Palace