Stepping into the road running category, VF Corp. reached an agreement to acquire Altra, which makes a wide range of road and trail running shoes popular with ultra-runners.
Founded in 2009 amid the barefoot and minimalist craze, Altra stands out for its Zero-Drop model that advocates a more efficient running form. Where traditional shoes typically feature a 12-millimeter drop from heel to forefoot, zero-drop models have no drop from the heel of the shoe down to the forefoot.
A second unique feature is the shoe’s wide toe-box that allows the toes to relax and spread out naturally and the big toe to remain in a straight position. Traditional running shoes feature pointy toe boxes that squeeze the toes out of their natural position–increasing risk of bunions, hammertoes and plantar fasciitis.
Altra’s founders–Golden Harper, Brian Beckstead and Jeremy Howlett–were based in Utah and the business was sold to also Utah-based Icon Health & Fitness, the maker of fitness-related products, in 2011, the same year the brand launched. One of the few survivors of the minimalist shakeout, Altra has regularly delivered double-digit to triple-digit annual growth.
The brand is sold in 55 countries through more than 1,600 stores, largely run and outdoor specialty, as well as through its own e-commerce platform. Altra ranks among the top ten brands in the run specialty channel and is among the leaders in trail running.
VF Corp. has several products aimed at the running enthusiast, including The North Face’s wide range of running apparel and trail shoes. Smartwool also makes running apparel and socks, as well as Icebreaker, another Merino wool apparel brand the company is in the process of acquiring for $204 million. But Altra gives VF Corp. its first road running shoe and a leading trail model.
“The acquisition of the Altra brand is another example of our efforts to reshape and evolve our portfolio of powerful brands to align with our enterprise value creation model,” said Steve Rendle, chairman, president and CEO of VF Corp, in a statement. “The active outdoor and performance sector is a large and attractive growth space. The addition of the Altra brand brings to VF a unique and differentiated technical footwear brand and a capability that, when applied across VF’s outdoor footwear, direct-to-consumer and international platforms, will serve as a catalyst for growth.”
Terms of the Altra deal were not disclosed. The deal is expected to close in April. On a trailing 12-month basis, the Altra brand generated approximately $50 million of revenue. The brand is expected to be immediately accretive to earnings per share.
Wall Street analysts said the acquisition is small, with the $50 million representing about 0.4 percent of VF’s annual revenues of $11.7 billion in 2017. But they said it complements VF’s portfolio and the brand has potential to grow.
“The Altra acquisition appears to be a sound fit for VFC, with extensions into a new consumer segment in the performance running area,” said Jim Duffy, an analyst at Stifel, in a note.
Duffy noted that acquisitions have been VF Corp’s top capital allocation priority and “this small tack-on acquisition” follows not only on the deal to acquire Icebreaker but its $820 million purchase of Williamson-Dickie that closed last October.
Wrote Duffy, “The acquisition fulfills VFC’s strategic criteria to reach productive consumer segments, and potentially create synergies with other portfolio brands while being immediately accretive and likely additive to the growth and margin profile. While the Altra deal represents less than 1 percent of sales, the deal thematically fits VFC’s strategy to reshape the portfolio and drive shareholder returns.”
Susquehanna analyst Sam Poser likewise viewed Altra as a “good fit” for VF, in part because of potential synergies with The North Face brand. He said The North Face has struggled for years to come up with “consistent compelling” footwear offerings. In the near term, Altra’s product team will be able to bolster The North Face’s footwear development. In the future, opportunities for co-branding or collaborations between The North Face and Altra will likely arise.
Poser also said Altra’s impassioned management fits VF’s acquisition criteria. Golden Harper, the founder and brand visionary, as well as 65 employees will join VF Corp. after the deal is complete. Altra will remain based in Utah.
“VFC almost never buys a brand that does not have a deep bench that understands and lives the ethos of the brand,” wrote Poser. “Altra fits the model, as does the recent acquisition of Williamson Dickies and the soon-to-be-closed acquisition of Icebreaker.”
Finally, Poser said VF sees the potential for over $200 million in annual revenue over the next few years and the opportunity to take share from Hoka One One.
Susquehanna slightly raised its FY9 and FY20 EPS estimates from $3.45 and $3.91 to $3.46 and $3.94.
Altra’s team should also benefit from joining an organization more aligned to footwear than Icon, the world’s largest manufacturer and distributor of exercise equipment, with brands including NordicTrack, ProForm and Gold’s Gym. Besides The North Face, other footwear brands owned by VF include Vans and Timberland.
Altra has also launched an apparel line that VF will be able to help further develop.
“We like this move,” Terry Schalow, executive director of the Running Industry Association, told Runner’s World. “What I know about the VF Corporation portfolio is that they are leaders in in their respective markets. It’s not just dollars and cents; they really look to not just add a financially strong brand, but also a brand with a unique culture that is outdoor-based and that has a humanity in it and in its culture.”
“This does nothing but help Altra,” added Schalow. “It creates a level of support they haven’t had in the past and access to resources they’ve never had before, and this will ultimately benefit the whole running channel.”
“The Altra brand’s truly innovative product and devoted brand loyalists will serve it well in its new home at VF,” said Scott Watterson, Icon’s chairman and CEO, in a statement. “The sale of Altra will accelerate the continuing growth of our NordicTrack and ProForm core brands, our Freemotion commercial business and iFit, our connected fitness subscription. The global health and wellness industry is exploding, and we’re doubling down on that growth.”
VF’s Outdoor & Action Sports portfolio overall includes: Eagle Creek, Eastpak, JanSport, Kipling, Napapijri, Reef, Smartwool, The North Face, Timberland and Vans. Outside its Outdoor & Action Sports portfolio, VF’s brands include Lee, Riders by Lee, Rock & Republic, Wrangler, Bulwark, Horace Small, Red Kap, Dickies, Kodiak Terra, Walls, Workrite and Nautica.
Before its recent acquisition-spree, VF sold a few brands that didn’t fit in its increasingly outdoor portfolio. These include its 2016 sale of Majestic Athletic to Fanatics and the sale of its Contemporary Brands businesses, which included the 7 for All Mankind, Splendid and Ella Moss, in that same year. VF announced plans to sell Nautica last month.
Photo courtesy Altra
