Nautilus, Inc. has signed a purchase option agreement to acquire the assets of its largest contract manufacturer, Xiamen, China-based Land America Health and Fitness Co., Ltd.
The purchase option through June 30, 2007 gives Nautilus time to complete necessary due diligence and enter into definitive agreements, while extending procurement cost reductions through 2007. The agreement also includes rebates for the period of January 1, 2006 to June, 30, 2007, which will continue through December 31, 2007 upon exercise of the purchase option. Consideration for the acquisition is approximately $72 million in cash and stock with an anticipated closing date of December 31, 2007. The acquisition is expected to improve company gross margins by 1.5-2.0 percentage points in 2008.
“The prospect of acquiring Land America is a significant step toward our goal of achieving 11-14 percent operating margins in the next three years, and positioning our company for long-term competitiveness in the global fitness industry,” said Gregg Hammann, Chairman and CEO of Nautilus, Inc.
“Diversifying our manufacturing supply chain is the next logical step after diversifying our brands and channels to prepare for a rhythm of sustainable and profitable growth. In addition to margin improvement, vertical ownership presents an opportunity to further control intellectual property, quality, and flow of goods from Asia, where three-fourths of our equipment is manufactured today.”
Land America has manufactured the Bowflex home exercise gyms for more than eight years and began manufacturing Bowflex TreadClimber cardio trainers for the company last year. The purchase option of Land America involves four modern buildings with approximately 700,000 square feet of manufacturing floor space on a 15-acre site in an economic development zone near Xiamen, China, as well as a trading company, Treuriver Investments Ltd. Land America was honored by Nautilus last spring as its supplier of the year for routinely meeting Nautilus standards for quality and delivery.
Hammann said the company will continue to work with its other contract manufacturing partners in Asia and its two domestic manufacturing plants to drive growth and improve margins.
“A diversified manufacturing and supply base is important to maximizing our margin potential and to mitigate supply risks as we grow our business. The combination of strategic partnerships with key suppliers, along with domestic and international manufacturing, helps us accomplish that goal.”
