Most of the key stories featured in the annual year in review issues of The B.O.S.S. Report  over the last five years have been centered around mergers & acquisitions as private equity and strategic buyers rushed into the space, throwing around easy money that made the OR Show look like a Silicon Valley love fest before the bubble burst.  Well, the bubble hasn’t exactly burst, but there is little fresh air being pumped into it either as the sub-prime mortgage market continues to impact the broader credit markets.

The Green Movement, a signature of the outdoor industry for many years, has now become the hottest marketing theme around the globe, with Detroit and Madison Avenue both finding new ways to dilute this important message by attaching it to everything in sight.  Add a Nobel Peace Prize to the mix and people forget that it’s the message and not the messenger, prompting some to wonder if 2007 may have been the year when the issue of global warming, sustainability and the environment have been relegated to nothing more than a marketing slogan for oil companies and car manufacturers.  The market only has to look as far as the longest-presidential-campaign-in-history to realize that one of the most important initiatives for this market has become a footnote in the discussion. 

Still, the outdoor industry as a whole made some solid strides on the public policy front, thanks in large part to the leadership of Outdoor Industry Association.   Approximately 60 manufacturers formed the Eco Working Group to determine how to reduce the industry’s environmental footprint.  The group, which includes pioneers Nike, Timberland and REI, is sharing best practices. It will also develop metrics which companies can adopt to measure their progress in reducing consumption, waste and emissions.

“Addressing climate change went from, ‘hey this is something we should think about’ to ‘hey this is something we need to do,’” said Frank Hugelmeyer, president of OIA. “That was a shift that happened this year.

The industry helped secure a record increase in funding for the National Park Service and helped head off steep cuts of federal funding for local parks. OIA secured a modest $10 million increase in funding for the Land and Water Conservation Fund, which the Bush Administration is trying to eliminate.                                                                        

The fund offers 50/50 matching grants to the states for the development of local parks and recreational areas. 

“This is critical as an inspirational effort,” said Hugelmeyer. “You don’t immediately go from the backyard to Everest. This is the feeder system for getting people from the backyard to the national parks.”

The issue of climate change – whether it be long-term or short-term – is seen as a macro initiative for many in the outdoor market.  Protect our playground and therefore our livelihood, say many.  But for some, the issue hit very close to home again in 2007 as rising temperatures and lack of snow and rain have led to record bankruptcies and closing business.  You can’t paddle on a dry river and there’s little reason to go to a mountain with no snow.  The pressure from big box retail helped push some over the edge.  Among the victims were Sunny’s Great Outdoors and Princeton Ski Shop. The two companies filed bankruptcy and closed nearly 20 stores in the Northeast and Mid-Atlantic areas, respectively. Both companies said unseasonably warm weather left them short on cash and long on inventory.

Adventure 16 President John Mead acknowledged 2007 was a tough year, in large part due to another horrendous fire in San Diego County’s backcountry.  Much of our outdoor playground in Southern California was temporarily destroyed,” said Mead.  The 14-store chain now has to contend with the prospect of Dick’s Sporting Goods entering their market in a big way after the retailer acquired the Chick’s Sporting Goods chain late in the year.

A Turn in the Weather? 

No one is yet predicting that Al Gore will be forced to give back his prize, but the year did end on a high note for many retailers as the snow began to pile up relatively early across much of the country.  Dry, warm winters have wreaked havoc on the ski industry and hurt watersports across the country in recent years.   As B.O.S.S. went to press, a monster storm was heading east after dumping a foot of snow in the Sierras.  Much of the northern half of the country was buried under as much as 15 inches of snow.

“The general outlook is very positive for us with the weather,” said David Ingemie, president of the Snow Sports Industries Association. “The snow has been on the weather map since October. Most retailers have done already what they did in all of last year.”

Lines Between Retail and Vendor Start to Blur…

The sporting goods world tilted slightly more vertical in 2007. In a game of role reversal, stores moved into the brand building business, while several brands moved more aggressively into store operations.  Dick's Sporting Goods reached exclusive deals for a number of private brands, including Nike ACG, Umbro and Field & Stream.  Private label/brands have helped DKS meet and exceed its plan for the exclusive business to represent 15% and has now decided to stop reporting the size of the private label/brands business in its quarterly and annual reports filed with the SEC.  Not to be completely outdone, The Sports Authority reached an agreement with Collective Licensing International to license the Sims brand in Snowboard and added a number of exclusive brands in golf as well.                                          

Deal Flow Slows as Cash Dries Up…

While brands and retailers may still be consolidating, there seems to be little capital available to finance consolidation among vendors, said Nathan Pund, founder and principal at Silver Steep Partners. The credit crunch and the fact that the big boys seem to have sated their appetite for acquisition means 2008 is shaping up as a weak year for M&A activity.               

“Dealflow will slow down considerably,” predicted Pund. “The number of well developed fast-growing, highly profitable brands is just about exhausted. Most of those have sold.”

Quicksilver, for instance, has cleaned up its portfolio. VF, meanwhile, has filled in most of the gaps in its portfolio. The big unknowns are Amer Sports and Jarden Corp.  The latter acquired K2 Inc. in 2007.

No one knows whether its Jarden Outdoor Solutions, which was placed under a new CEO in November, will keep acquiring or divest some of its holdings. The business’ brands now include Abu Garcia, Coleman, K2, Marker, Marmot, Penn, Rawlings, Sevylor and Volkl.  Amer Sports, which owns Wilson, Suunto, Atomic, Precor and Solomon, has also been conspicuously silent.

Columbia, meanwhile, is always on the prowl for a good deal, but as a disciplined buyer may be reluctant to pull the trigger at current valuation levels.

“The number of strategic buyers is diminished,” said Pund.

There were no ground breaking product innovations in 2007, but there were some bright spots. Particularly noteworthy was vibrant footwear sales, growth in trail fitness and a resurgent travel market

But Wall Street Still Has a Few Favorites…

As exemplified in the chart on the right, the public market still likes a good story and there wasn’t many better than the turnaround at Deckers engineered by Angel Martinez.  Much of the energy surrounds unique footwear that crosses over nicely from performance to lifestyle, capturing the attention of consumers tired of the old performance footwear looks and unimpressed by the hoopla stirred up by the fashion athletic trend (or fad).

“We are delighted to see what is happening in footwear,” said Mead. “Fun stuff that is coming out with outdoor heritage that is useful and practical. (Keen, Merrell, Patagonia, Sanuk, Simple). We see that as a growth area. How many times do you come in to buy a pair of boots or trailer runners? But everyone wears shoes every day.”

It’s all part of the brand convergence that is going on with fashion companies crossing over into the outdoor world and visa versa, said Pund.

 “Fashion is no longer a dirty world in the outdoor world,” said Pund. “Retailers understand they need to walk a very tight rope between a product that performs for a very narrow outdoor pursuit and something that can be used for everyday use. Ability to bridge a look that fits a daily use as well as performs at the higher intended use is going to be a continuing push in the outdoor world.”

The Consolidation Trend Kept the Market Guessing…

Even as momentum slowed on the deal front, and mega deals gave way to continued focus and integration, the outdoor and snow sports market saw a flurry of movement in the retail space with a focus on online presence as two of the industry’s major online retailers sought funding to fuel growth. Meanwhile, the brick & mortar guys sought acquisitions as a means of increasing door count and expanding into new geographies.

Moosejaw Mountaineering brought Parallel Investment Partners in as a private equity partner. Robert Wolfe, Moosejaw’s founder, and his siblings maintained significant ownership in the multi-channel retail chain and continue in their current management positions.

Liberty Media Corporation acquired control of Backcountry has been generating 50%+ top-line growth since its founding and Liberty’s huge financial resources should help if pad its lead.

North Castle Partners, a private equity firm, acquired controlling interest in Performance, Inc., one of the largest on-line and brick & mortar bicycle retailers in the country. Terms of the transaction were not disclosed.

Big Dog Holdings, the parent company to The Walking Company, acquired Natural Comfort Footwear, a Florida chain of eight retail stores selling comfort shoes. Big Dog changed the Natural Comfort stores over to The Walking Company stores shortly after the transaction closed. The company also announced that it plans to change the name of Big Dog Holdings, Inc. to The Walking Company Holdings, Inc. in early 2008.

Cabela's entered Canada with the acquisition of S.I.R. Warehouse Sports Store, a Winnipeg, CA-based hunt & fish specialty retailer.

Dicks Sporting Goods secured a foothold in Southern California with its $40 million acquisition of the 14-store Chick’s Sporting Goods chain.

Gander Mountain finally made their way back into the direct retail business after a lengthy court battle with Cabela’s over Gander’s direct marketing trademarks. The company then paid $70 million to acquire Overton's, Inc., a hunt/fish direct retailer headquartered in Greenville, N.C. Overton’s fulfillment center and call center will help Gander Mountain’s fast track plans to beef up its Internet offerings and re-launch a catalogue at a time of declining comp store sales.

Specialty Sports Venture of Golden, Colo. acquired 18 Breeze Ski Rental shops at locations throughout Colorado, Utah and California for $6.5 million. The deal gave it 145 stores in the three states. The company, headed by Ken Gart, has been growing at double-digit rates the past few years.

Bike Barn, which with five locations is touted as Houston's largest independently-owned bicycle dealer, added a sixth location with the acquisition of ACME Bicycle Co. and its 15,000-square-foot retail center located in Katy, TX.

GSI Commerce acquired Accretive Commerce Inc., a Huntersville, N.C.-based e-commerce solutions provider. GSI paid $97.5 million in cash and the deal helped expand GSI's partner base to nearly 80 retailers.

In perhaps the biggest deal of the year, master deal-maker Dick Heckman unloaded his entire portfolio of brands collected under the K2 Inc. umbrella.  Jarden Corporation, the parent company to Coleman, acquired K2, Inc. for a combination of cash and stock valued at approximately $15.50 per KTO share, or $734.7 million.  Jarden said it foresees launching a Coleman apparel brand and synergies between Coleman and K2’s fishing brands. Following the deal, the Outdoor Solutions segment became Jarden’s largest operating segment with roughly 46%, or $2.6 billion, of the company’s $5.6 billion in revenue.                                                             

Liquidlogic and Legacy Paddlesports completed their merger after months of discussion among the owners and their retailers. The business is now headquartered at the Legacy Paddlesports plant in Greensboro, NC, although Liquidlogic R&D and customer service remains in Flat Rock, NC.

The Timberland Company acquired substantially all of the assets of IPATH, LLC through a new wholly-owned subsidiary, IPATH Footwear Inc. This was Timberland’s second consecutive acquisition of a small, environmentally friendly action sports brand.

Garmont NA acquired Life-Link Backcountry Travel from its parent company, Life Link International. Life Link International still owns the Croakies brand of accessories and plans to continue operations.

Royal Robbins found a happier home as Phoenix Footwear divested the business to Kellwood’s American Recreation division, joining Sierra Designs, Kelty, and Slumberjack. Phoenix acquired Royal Robbins in late 2003, for $11.7 million and sold it to Kellwood for $38 million.

VF Corporation acquired lucy activewear and Seven For All Mankind. The two companies formed the foundation of a new lifestyle brand-based coalition, VF Contemporary Brands.  Mike Egeck, CEO of Seven for All Mankind, and former president of VF’s Outdoor Coalition in the U.S., became president of the new coalition.

Polartec crossed a major hurdle in 2007 as the company emerged from bankruptcy. The new company, Polartec LLC, a wholly owned subsidiary of Chrysalis Capital Partners, completed the acquisition of the assets of Malden Mills Industries, Inc. . Chrysalis Capital acquired the assets at an auction in which the firm was named the Stalking Horse bidder and No other parties made an offer. The price was $44 million.

Crocs, Inc. acquired Bite Footwear for $1.75 million in cash, plus a potential earn-out of up to $1.75 million.

SRAM Corporation completed its acquisition of Compositetech Inc., which makes products under the Zipp name. SRAM has been slowly building its portfolio of brands to include premium manufacturer of nearly every type of bicycle component. The Zipp acquisition should come close to building a complete platform.

Lowa Boots U.S., headed by Peter Sachs, acquired distribution rights to X-Socks, an Italian sock and base layer brand. Later in the year, Lowa took over distribution rights to the Tecnica Outdoor Footwear division for the U.S. market. The Lowa hiking and Tecnica ski brands are both owned by The Tecnica Group, based in Giavera, Italy.

Thule traded hands to yet another private equity firm in 2007 – the third owner in five years. Nordic Capital Fund VI signed an agreement to acquire the Thule Group from Candover. Candover said it realized a 2.5X return on the investment. Candover led the €465 million ($600 mm) management buyout of Thule in December 2004. Since then, Thule has grown organically as well as through seven acquisitions, including Brink, SportRack, and Valley. Thule also acquired Case Logic, Inc in 2007.