SGB WEEKLY 1132

AUGUST 8, 2011

The Weekly Digital Magazine for the Sporting Goods Industry

IN A TOUGH ECONOMY

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Editor In Chief James Hartford (704.987.3450 x104) james@sportsonesource.com

AUGUST 8, 2011

The Weekly Digital Magazine for the Sporting Goods Industry

Senior Business Editor Thomas J. Ryan (917.375.4699) tryan@sportsonesource.com Editor/Analyst Kyle J. Conrad (704.987.3450 x111) kconrad@sportsonesource.com Creative Director Teresa Hartford Graphic Designer Camila Amortegui Advertising Sales Director Casey Vandenoever (303.997.7302) caseyv@sportsonesource.com Advertising Sales Account Manager Katie O’Donohue (704.987.3450 x110) katieo@sportsonesource.com Circulation & Subscriptions subs@sportsonesource.com Technology Chief Information Officer, Mark Fine VP Research & Development, Gerry Axelrod Manager Database Operations, Cathy Badalamenti

Page 8 SportsOneSource Publications SGB TEAM Business Sportsman’s Business The B.O.S.S. Report Sports Executive Weekly SGB Update Footwear Business Update Outdoor Business Update Sportsman’s Business Update Team Business Update SGB Weekly

SportsOneSource Research SportScanInfo OIA VantagePoint SOS Research

NEWS

4 AMER SPORTS Reports Q2 Loss of $18 million, But Outlook Is Hopeful SPORTS SUPPLY Acquires Bethlehem Sporting Goods

5 GILDAN Reports Q3 Earnings Up 42 Percent

BY THE NUMBERS

6 NSSF Files Suit Against ATF to Stop Multiple Sales Reporting of Rifles SPEEDO Parent Reports Moderate Revenue Growth in Q2

FEATURES

8 SGB QUESTION What Do You Think Of The Resurgence In M&A Activity?

12 THE RETURN OF THE BLOCKBUSTER DEAL- The Floodgates Have Opened

DEPARTMENTS

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18 CLASSIFIEDS

Copyright 2011 SportsOneSource, LLC. All rights reserved. The opinions expressed by writers & contributors to SGB WEEKLY are not necessarily those of the editors or publishers. SGB WEEKLY is not responsible for unsolicited manuscripts, photographs or artwork. Articles appearing in SGB WEEKLY may not be reproduced in whole or in part without the express permission of the publisher.

SGB WEEKLY is published weekly by SportsOneSource, LLC, 2151 Hawkins Street, Suite 200, Charlotte, NC 28203; 704.987.3450. Send address changes to SGB WEEKLY, 2151 HAWKINS STREET, SUITE 200, CHARLOTTE, NC 28203; 704.987.3450.

WEEK 1132 | SGBweekly.com

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NEWS

AMER SPORTS REPORTS Q2 LOSS OF $18 MILLION, BUT OUTLOOK IS HOPEFUL Global Sports equipment manufacturer Amer Sports Corp., whose brands include Atomic, Salomon and Wilson, among others, reported a net loss of €12.6 million ($18 million) as sales slipped 1 percent during the company’s seasonally slow second quarter.

Amer Sports’ revenues dipped to €315.6 million ($454 mm) for the April-through-June period compared to sales of €317.5 million ($405 mm) in the year-ago period.

The Finnish maker of sporting goods said that translated to 6 percent growth on a local currency basis.

Except for Racquet Sports and Golf, all business areas exceeded the Group’s average growth rate of 6 percent, management said in its quarterly report. Sales rose 14.5 percent to €133.4 million ($192 mm) in Winter and Outdoor, declined 11.4 percent to €136.3 million

($196mm) in Ball Sports/Wilson and slipped 2.5 percent to $45.9 million ($66 mm) in Fitness/Precor.

In local currencies, EMEA increased by 10 percent and the Americas by 7 percent, and Asia Pacific decreased by 7 percent.

Amer Sports management said the second quarter is seasonally slow in Winter and Outdoor as all focus is directed toward order intake. Sales for Winter Sports Equipment improved 3 percent in local currencies.

Group EBIT was -€10.9 million (-$16 mm), an improvement from last year’s -€16.9 (-$22 mm). In local currencies, increased sales volumes contributed €6.3 million to EBIT growth, partly offset by -€1.9 million due to lower gross margins. The gross margin declined 40 basis points to 42.3 percent in April-June 2010 due to Racquet Sports. Operating expenses decreased by €2.4 million.

SPORTS SUPPLY ACQUIRES BETHLEHEM SPORTING GOODS Sports Supply Group, which is changing its name to BSN Sports, Inc., has acquired Bethlehem Sporting Goods, according to a report in The Morning Call in Allentown, PA. Bethlehem Sporting Goods is one of Lehigh Valley's oldest privately owned sporting goods merchants, started on the city's South Side as a place to buy anything from baseball bats to trendy attire. The article noted that the business' focus changed in 2005, when it moved from its W. 4th Street location to a 20,000-square-foot building on Monocacy Street in the city, shifting from retail sales to largely selling athletic gear to high school and college sports teams.

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BY THE NUMBERS +4.6 percent consolidated

comps growth for July, according to the International Council of Shopping Centers (ICSC) which tracks 27 major retail chains excluding Wal-Mart.

+3.5 percent industry comps

excluding fuel sales. The July fuel price lift of 1.1 percentage points compared with an average lift of 1.4 percentage points during the prior month.

+1.4 percent consolidated

comps growth for apparel chains in July, compared to a 5.5 percent comp improvement in June. Some of the slowdown from June can be contributed to better-sell through of clearance merchandise in June, while merchandise that didn’t sell in June was marked down even further in July.

+8.0 percent comp growth of

GILDAN REPORTS Q3 EARNINGS UP 42 PERCENT Gildan Activewear reported earnings jumped 41.7 percent in the third quarter ended July 3 to $94.1 million, or 77 cents a share. Higher net selling prices, combined with manufacturing efficiencies and the 3-cents-per-share accretive impact of the acquisition of GoldToeMoretz more than offset the unfavorable impact of significantly higher cotton and other input costs and lower unit sales volumes, management said.

Year-ago results were adjusted for last year's comparative results to reflect a restructuring charge of U.S. 1 cent a share related to the consolidation of U.S. retail distribution activities.

All figures are in U.S. dollars.

Net sales in the third quarter amounted to U.S. $529.8 million, up 34.0 percent from $395.3 million in the third quarter of fiscal 2010. The company had previously forecasted that third quarter sales would be close to $550 million. Sales of activewear and underwear amounted to $424.6 million, up 20.9 percent from fiscal 2010, and sales of socks were $105.2 million, up 139.1 percent from last year.

Management said the growth in sales of activewear and underwear compared to the third quarter of fiscal 2010 was due to an approximate 26 percent increase in average net selling prices, partially offset by a 3.9 percent reduction in unit volume shipments which were down from last year and lower than forecast due to capacity constraints and low inventory availability, combined with lower industry demand which continued to deteriorate throughout the quarter.

Gross margins in the third quarter were 28.3 company compared to 27.1 company in the third quarter of fiscal 2010, due to manufacturing efficiencies and the impact of the GoldToeMoretz’ acquisition. The impact of higher net selling prices on percentage gross margins offset the impact in the quarter of the higher cost of cotton.

luxury retailers in July, boosted by a 15.6 percent jump from Neiman Marcus.

-4.6 percent comp decline for

Kohl’s, which has been consistently strong. Kohl’s missed estimates badly, which some analysts attributed to the company launching discounts earlier in the month to gain an advantage in a competitive environment. Although management called the monthly results “disappointing - particularly given the strong June results…”, the retailer upped Q2 guidance, citing better inventory management and expense control.

+4.1 percent comp growth for

Target, remained solid on better sales of groceries and healthy/beauty products.

-5.0 percent decrease in comps

for Gap, disappointed due to weakness from Gap NA (-6 percent), Banana Republic (-4 percent), Old Navy (-3 percent) and the International business (-10 percent.)

NSSF FILES SUIT AGAINST ATF TO STOP MULTIPLE SALES REPORTING OF RIFLES

NSSF President Steve Sanetti

The National Shooting Sports Foundation (NSSF), the trade association for America's firearms industry, has filed a lawsuit challenging the legal authority of the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) under the Gun Control Act to compel 8,500 federally licensed firearms retailers in Arizona, California, New Mexico and Texas to report the sale of two or more rifles.

Specifically, the regulation calls for reporting multiple sales of any semiautomatic rifle larger than .22 caliber and capable of accepting a detachable magazine that are purchased following an FBI background check by the same individual within five consecutive business days.

NSSF's lawsuit, filed in the U.S. District Court for the District of Columbia, seeks an injunction to block ATF from implementing the reporting requirement.

ATF has sent "demand letters" to firearms retailers in the four states to inform retailers they must begin reporting such sales by August 14.

Despite its lawsuit, NSSF is encouraging all retailers, not just those along the Southwest border, to continue to cooperate with law enforcement and report any suspicious activity to the ATF. "The firearms industry and NSSF take pride in having a longstanding cooperative relationship with ATF," said NSSF President and CEO Steve Sanetti. "Retailers have long been considered a vital source of information for law enforcement in combating illegal firearm trafficking

SPEEDO PARENT REPORTS MODERATE REVENUE GROWTH IN Q2 Warnaco Group reported sales at its Swimwear Group, which includes Speedo, improved 3.3 percent in the second quarter, to $78.7 million from $76.2 million a year ago.

Operating profits climbed 19.6 percent to $10.7 million from $8.95 million a year ago.

Overall, Warnaco, whose primary business is Calvin Klein Jeanswear and Underwear, reported net revenues increased 14 percent, to $591.4 million, compared to the prior year quarter.

International net revenues increased 32 percent compared to the prior year quarter while direct-to-consumer net revenues increased 38 percent.

All three of the company's segments (Sportswear, Intimates and Swimwear) reported growth, led by Sportswear and Intimates, which were up 17.3 percent and 13.7 percent, respectively. The company's international net revenues rose more than 32 percent, compared to the prior year quarter, reflecting the powerful growth in the Calvin Klein and direct-to-consumer businesses, which more than offset a 4 percent decline in the U.S. net revenues.

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SGB WEEKLY AUGUST 8, 2011

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Each month SGB enrolls subscribers in discussions about the top stories affecting the market. This month SGB asked the industry about the recent uptick in big merger & acquisition deals. Here are a few responses. To read more responses or to add your own comments, go to sgbquestion.com.

WHAT DO YOU THINK OF THE RESURGENCE IN M&A ACTIVITY? If your brand isn't performing, you don't have the resources to add value, and you're seeing significant manufacturing cost increases, your future doesn't look good. Access to capital is such a huge factor in whether or not a business can reach its goals. If a company like Deckers or VF can continue to diversify, and acquisition gives other brands the resources they need to get to the next level, it can be a win for both parties. At the end of the day, customers don't know or care that Brooks is owned by Berkshire Hathaway, or that Chaco is owned by Wolverine World Wide. They just want the best value and performance from brands they trust.

Ted Kushion, Merchandise Manager, Gazelle Sports

I feel the current trend of consolidation is indicative of the current business climate. Companies faced with declining revenues and tighter margins are looking for ways to compete at lower costs or to spread the costs of doing business over a larger revenue stream. I don't see this trend changing for the next two to five years. It hurts the small business, but it is a means of survival for many companies that are struggling in the current economy.

Anonymous, President, Team Dealer

AS BIG FISH SWALLOW LITTLE FISH, THE BIG FISH WILL EVENTUALLY DIE AND THE LITTLE FISH WILL COME BACK TO TAKE OVER. SUCH IS THE CYCLE OF LIFE AND BUSINESS. Richard Burrows, Independent Rep., Golf, Military, Resort and

I believe that as publicly traded corporations have gotten comfortable with the new economic state, M&A has increased as an easier method of growth to service ROI demands of shareholders. Natural, expected, and much easier than achieving growth by building a better mouse trap. Good for the growth of these brands, yes. Good for the industry, no. Driven by profit and growth, a publicly traded corporation provides the least amount of product at the highest possible price, and pays its suppliers and employees the least it can. Authenticity and innovation are traded for predictability and homogenization.

Like an invasive species in a natural environment, the resources are gobbled up and the healthy wild natives are choked out. Passionate visionary people that want to make a difference for the love of their sport lifestyle, are traded out for career corporate politicians that fit better into the new mega-corp culture.

Brad Ford, Director, Brad Ford Branding

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All of the mergers happening for me are just business as usual. Without them, some brands would disappear; in other cases this is exactly why they happen as the buyer with controlling interest will discontinue the brand to enhance their own, reducing their competition. The downside to some of these is that they become too large for efficient resources to continue to promote all of the various brands, or the acquired brand is way outside their product knowledge, e.g. Quicksilver/Rossignol. These too big to fail businesses do not have the clout that the big banks have with the federal government to bail them out.

So if there is a miscue the entire house of cards will fall. This in itself is not bad because all of the pieces have value and will be snapped up by smaller successful business plans. This is capitalism at its normal behavior.

IT LOOKS THAT AT THE END OF THE DAY, THERE WILL BE ONE MAKER, ONE CUSTOMER AND ONE FACTOR. OUR INDUSTRY IS SHRINKING.

Brian Dani, Owner, CBS Boardshop

With very few exceptions the driving factor in these mergers is to leverage efficiencies of scale and drive revenue through direct-toconsumer models. Good for these corporate behemoths and their legions of bean counters and soulless managers who are driven not by market inflection and opportunity but by an edict to the shareholders ROI. That will create only further opportunity for smaller brands with a focus on their customer and consumer, but it is an uphill battle.

I simply see it as the free flow of enterprise. Many times a smaller company lacks the capital structure to implement initiatives to grow the business. A larger corporation may have these resources that could allow a brand to flourish. It isn't always necessary by any means and there are many large private companies that take investment but don't sell outright. Is it good?

Who knows, it really depends on the people and their objectives for selling and buying. Is this a new trend in M&A? Nah, just normal process. When opportunities present themselves someone will take advantage of it.

Keith Reis, President, Sanitas Sales Group

ONE OF THE COMPANIES I WORKED FOR IN THE 1970S EMPLOYED OVER 250 SALESMEN CALLING ON RETAILERS. THESE WERE GOOD PAYING JOBS, NOW ALL NEARLY GONE FOREVER. THE EMERGENCE OF WALMART, COSTCO AND TARGET AS DOMINANT RETAILERS HAS CREATED LITTLE IN THE WAY OF OPPORTUNITY FOR VENDORS AND THE THOUSANDS OF JOBS THAT FORMERLY EXISTED. A HANDFUL OF MERCHANDISERS/DESIGNERS AND A FEW PEOPLE TRAVELING TO CHINA SOURCING WILL NEVER EQUAL THE VENDOR OPPORTUNITIES OR JOBS LONG SINCE LOST…GOOD LUCK YOUNG GUYS. I HAVE NO IDEA WHO YOU WILL BE SELLING TO.

Jack Vega, Director, Sportailor

Rob Garrett, Foreman, The Foundry

Note: To see all the responses to this month’s SGB Question and review the SGB Question Archives, or to add your own comments, go to sgbquestion.com.

Anonymous, Shoe Sales

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MOST OF THE TIME ACQUISITIONS ARE GOOD FOR THE INDUSTRY. THEY TAKE THE BEST OF BOTH COMPANIES AND MOVE UP STRONGER TO THE NEXT STEP OF THE LADDER. THE WEAK ECONOMY MAKES THE PRICE OF SOME GOOD COMPANIES INTERESTING BARGAINS FOR "CASHED" BUYERS. RUSSELL ATHLETIC'S ACQUISITION BY BERKSHIRE IN 2006 IS AN EXAMPLE OF BAD ACQUISITION. THEY BOUGHT RUSSELL CORP TO MERGE JERZEES AND FRUIT OF THE LOOM, BUT DRIED UP THE SPORTS BRANDS LIKE BIKE, RA, SPALDING, MOSSY OAK, ETC. THAT BECAME MEANINGLESS IN THE MARKETPLACE. Roberto Alcalay, Founder, Sashay Sourcing, LLC.

Amer with Salomon and Atomic and Ess, VF with a number of softgood brands, Jarden with Volkl, K2, Marker, Rossignol, Dynastar, Lange have gathered brands well over the free trade market concept simply because reducing the administrative and productive and logistic costs allows them to compete. And, not the least, to reduce competition on innovation, marketing creativity, consumer demand building investment. The result is that an exciting product becomes a dull commodity where you have a choice among cars as long as they are one model of black color. Marketing teachers in business school name it: mature market in the product life cycle. Cost cutting is the priority.

Richard Prothet, Financial Advisor/Former Head of Exports, Rossignol

Retailers are the major losers in these acquisitions.

Although, shipping savings may be passed on, wholesale prices rarely fall and almost always increase due to raw materials. Retailers are the ones who have to make the painful decision to raise prices or to absorb them. Another problem the supplier faces is what to do about outdated inventory which can be a struggle to sell or fill in with new and different looking packaging. Being a dealer for one company does not automatically mean that you will be open with the newly acquired company due to the M&As. Technically speaking, there will be more mergers on the horizon because it helps the suppliers' bottom line. This is free market capitalism at work.

Tyler Greenebaum, Sales Manager, KM Sports

THE ACQUISITIONS ARE THE DIRECT RESULT OF CORPORATE POLICIES WHICH IGNORE THE CATASTROPHIC POLLUTION THEY ALLOW TO MAKE THEIR TEXTILES OFF SHORE ESPECIALLY IN CHINA AND OTHER PARTS OF ASIA. BUNDLING GIVES THESE MEGA CORPORATIONS A VEIL TO HIDE WHO THEY ARE AND WHAT THEY DO. Doug Hoschek, CEO, Portland Woolen Mills

Note: To see all the responses to this month’s SGB Question and review the SGB Question Archives, or to add your own comments, go to sgbquestion.com.

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Where Strategic Decisions Begin SportScanInfo.com A Service of The SportsOneSource Group

THE RETURN OF THE BLOCKBUSTER DEAL With the economy’s steady recovery encouraging buyers to pull out their wallets, the floodgates have opened for mergers & acquisition deals.

By Thomas J. Ryan

I

ndeed, the year will likely all but go down as the return of the mega-deal. In June, VF Corp. announced plans to acquire Timberland Co. in a deal valued at $1.8 billion, or just over 11 times Timberland’s 2011 projected EBITDA (earnings before interest, taxes, depreciation and amortization) and 1.3 times revenue. Kohlberg Kravis Roberts & Co. also last month revealed its intention to buy Academy Sports + Outdoors in a deal sources put in the $1 billion range, also around 11 times forward EBITDA. Earlier in the year, eBay acquired sporting goods e-commerce powerhouse GSI Commerce for $2.4 billion and Fila Korea (along with Mirae Asset Private Equity) will shell out $1.23 billion for Acushnet Golf, the owner of Titleist and FootJoy. Promising to create a sporting goods retailing powerhouse up north, Canadian Tire reached an agreement to acquire Forzani Group Ltd. in an $800 million deal. Gildan Activewear plunked down $350 million to acquire GoldToeMoretz and Brown Shoe 12

SGB WEEKLY AUGUST 8, 2011

Photo courtesy of Tecnica

Co. acquired American Sporting Goods, the owner of the Avia, Ryka and And 1 brands, for $145 million in cash plus assumed debt.

A few of the industry’s up-and-comers are also finding new parents in 2011. PPR, the French luxury goods group that controls Gucci and Puma, bought the hip action sports apparel company Volcom for $607.5 million in a deal also valued at a lofty 11 times EBITDA. Deckers Outdoor, parent of UGG and Teva, acquired fast-growing sandals maker Sanuk for $120 million - nearly three times the $43 million in revenues Sanuk recorded in 2010.

Other deals have included Genesco’s acquisition of U.K. footwear retailer Schuh, Cramer’s recent buy of Stromgren, and Schutt’s acquisition of Adams USA’s football helmet/faceguard assets. Weyco Group, Inc., the parent of Florsheim, acquired The Combs Co., which owns the BOGS and Rafters outdoor and work footwear brands.

With both strategic as well as private equity buyers scouring the marketplace for

Joe Pellegrini, managing director Robert W. Baird & Co. based in Charlotte, NC, likewise sees almost a “perfect storm of M&A activity, probably more robust than the environment that existed from 2004 to 2006.”

new deals, the healthy M&A trend shows little sign of letting up, according to investment bankers working the industry.

“The M&A market today is very healthy, particularly compared to last year and during the downturn,” said Christopher Kampe, managing director at Tully & Holland, an investment banking firm in Wellesley, MA. “There are now clearly more buyers than there are sellers and competition among buyers is fierce for quality assets, and that is driving robust valuations.”

He added, “All of the factors for a big M&A trend are present – lots of cheap capital available, a multitude of private equity buyers, changing attitudes toward M&A from strategics, and a strong stock market.”

Joe Pellegrini, managing director Robert W. Baird & Co. based in Charlotte, NC, likewise sees almost a “perfect storm of M&A activity, probably more robust than the environment that existed from 2004 to 2006.”

First, banks are again willing to finance transactions. Liquidity constraints stemming from the debt crisis in 2008 that froze most M&A activity for nearly two to three years have evaporated. Second, private equity firms “have substantial capital sitting in check books and they are eager to put it to work in new investment opportunities.”

But Pellegrini believes much of the M&A activity is being driven by well-positioned and stronger strategic buyers looking for authentic brands and new growth platforms. ​ ROBUST MULTIPLES Particularly supporting strategic deals is that many of the leading “aspirational” sporting goods companies such as Lululemon, VF Corp, Under Armour, Wolverine World Wide, Columbia Sportswear as well as Nike and Adidas are trading near 5-year all-time valuation multiples on the public stock market. Pellegrini said a basket of such aspirational stocks trades at 13-14x TTM (trailing twelve months) EBITDA versus 8.5X for the S&P 500 index – representing almost a 30 percent premium to the overall market.

Plump stock multiples leads to a lower cost of capital especially if acquirers use their stock as currency for consideration in engineering a transaction while also justifying paying an above average premium multiple for quality acquisitions. Separate from growth prospects for any acquired brand, expected cost savings and other synergies gained from combining businesses can quickly make a transaction accretive to the bottom line earnings, he said.

Moreover, many strategics are sitting on sizable cash positions on their balance sheet earning at-best 50 to 100 basis points interest compared to significantly higher returns when used in an acquisition.

Finally, many leading sporting goods and outdoor operators are searching for new sources of top-line growth after spending the last few years shoring up balance sheets and strengthening internal competencies in wake of the 2008 financial crisis and surge in sourcing costs largely emanating from China. The positive is that those years of internal rationalization put many acquirers in a much “stronger financial position” to pursue acquisitions than in the past.

“The US has a private equity “overhang” of nearly $500B, and funds are anxious to invest previously “dormant” capital, often making them competitive with strategic buyers on valuation.”

Tripp Baird, founding principal at Partnership Capital Growth

“When the downturn took place, the strong companies in the industry weren’t shrinking or standing still,” said Pellegrini. “They were reinvesting in their business models and building resiliency and improved competencies to become stronger and more nimble.

Although they’re not completely immunized against further global volatility and production shocks, they’re more capable to adjust and consistently outperform weaker competitors. Given these dynamics, the strong franchises have prospered and are now trading at much higher market multiples both nominally and relatively. They are also generating strong cash flows and along with a formidable balance sheet. As a result, you’ve got all the pieces in place to drive M&A activity.”

At the same time, both strategic and PE buyers overall have become less risk averse.

“I think what’s happened is that decision makers are becoming more comfortable that the financial world might not fall off a second cliff” said Pellegrini. “As perceived risks have evaporated, multiples have expanded. It all goes hand and hand. Would it have been smarter to make acquisitions when the blood was flowing in the streets? Sure. But when emotions and uncertainty run high it is human nature to seek cover. And when things looked horrible, we didn’t know just how bad things were going to be.”

Tripp Baird, founding principal at Partnership Capital Growth in San Francisco, said the fact that there’s more private equity capital than at any time in history will also drive deals while pushing up valuations. Deal volumes fell in the downturn, but have since begun to rebound and capital remains abundant. He noted that PE firms typically have a 5-to-7 year window to invest the funds and those deadlines are approaching. Said Baird, “The U.S. has a private WEEK 1132 | SGBweekly.com

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equity ‘overhang’ of nearly $500B, and funds are anxious to invest previously ‘dormant’ capital, often making them competitive with strategic buyers on valuation.”

While Academy Sports + Outdoors represented the meaty part of such deals, the more likely sized-PE investments will be Fireman Capital Partners (FCP)’s cash infusion in June of roughly $20 million in Newton Running. Fireman Capital is run by Paul Fireman, the former ​chairman and CEO of Reebok International, LTD, and his son, Founding Partner Dan Fireman. Clymb.com, which offers flash sales of outdoor gear, just received $2 million in funding from former Microsoft design guru and Xbox executive J. Allard along with the Oregon Angel Fund, Walden Venture Capital and other individual investors.

Baird likewise concurred that strategic buyers have strong balance sheets after weathering the recession but anemic organic growth. Said Baird, “They need to buy growth and are willing to pay for it. Competition among strategic and financial investors has driven robust valuations.”

Baird also said the sports industry generally is seen as attractive to the investment community because of a strong trend toward health & wellness and active lifestyles. His firm is dedicated to supporting healthy, active, sustainable living companies and those firms – also including fitness clubs and healthy foods makers - have continued to see meaningful price premiums in deals.

Nathan Pund, who heads up the Outdoor Investment Banking Group at D.A. Davidson & Co., also sees continued strong participation in outdoor activities driving future growth and innovation and thus continued interest to invest in the sector.

“The outdoors continues to be a great place for people to recreate, whether skiing, cycling, climbing, action sports, or whatever the activity, people are doing more of it and that is good for the industry,”

“It’s getting better every day but I don’t think the M&A activity is anywhere near what it was like in 2007, which was obviously a record breaker,” Nathan Pund, Outdoor Investment Banking Group at D.A. Davidson & Co.

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“There are now clearly more buyers than there are sellers and competition among buyers is fierce for quality assets, and that is driving robust valuations.”

Christopher Kampe, managing director at Tully & Holland investment banking firm

said Pund. “Some are looking to such activities as a way to enjoy their older age, others are looking to those activities to relieve stress or be healthier in their lives, or to get back with nature. On top of that, people have adopted the outdoor lifestyle as part of their everyday lifestyle so you see them incorporating items like soft shell jackets and trail running shoes into their work and every day routine.

This ‘aspiration’ towards the outdoors has been a strong trend and continues to drive a lot of spending in the category.”

SELLERS SEE HIGHER PRICES For sellers, the primary reasons to sell are obviously that valuations have rebounded. While many of the publicized deals were quoted at a lofty 11X, other deals are still getting done at healthy multiples in the high-single-digit range in the sector.

Kira Spivak, owner of CFO Services in Denver, believes many sellers’ grand expectations of what they could fetch in a merger have been beat up in the past two years, bringing them a little closer to being able to close a deal with a strategic buyer.

“It’s a good time to sell if you’ve got a solid, proven business, if you don’t feel a huge urgency, and if your expectations for valuation are realistic,” observes Spivak. “Buyer’s will always be opportunistic in any market. The question is more as to where you’ve proven yourself within your niche as compared to other opportunities to the buyer.”

At the same time, she believes the fact that many companies have tested their business model during the grueling recession provide buyers with more confidence to invest.

“I believe buyers are getting more comfortable in seeing the differences between what was just a dip with the recession vs. a core business issue,” said Spivak.”Nervous buyers might look at deals. buyers close deals.”

RECENT SPORTING GOODS INDUSTRY MERGERS & ACQUISITIONS MONTH YEAR ACQUIRED COMPANY

BUYER

July 2011 Sanuk Deckers Outdoor Corp.

June ​​Schuh ​ ​ ​Genesco, Inc. ​​​Stromgren ​ Cramer Products

Adams USA’s Football Assets ​Schutt Sports

Volcom ​ ​PPR S.A.

Timberland Co. VF Corp.(1)*

Buckeye Corner Stores Genesco, Inc. (Lids Sports)

Academy Sports + Outdoors Kohlberg Kravis Roberts & Co (1)* ​ ​​Chariot Carriers ​Thule Groupay ​ProSteel Security Products ​Promus Equity Partners

Smith Hockey Warrior Hockey

Acushnet Golf ​Fila Korea (1)*

Forzani Group, Ltd. ​ ​Canadian Tire (1)*

Asana Activewear ​​ActivewearUSA.com April ​​Ed Hardy ​ Iconix Brand Group

Crosman Corp. ​Wellspring Capital ​​Management

Redmond Athletic Supply Kimmel Athletic Supply ​​GoldToeMoretz ​Gildan Activewear ​​GSI Commerce Ebay March Bogs/Rafters Weyco Group ​Feb. Fanatics GSI Commerce

Sebile Fishing Lure Assets Pure Fishing Jan. Victory Archery Aldila, Inc.

Acorn Products ​Totes Isotoner Dec. 2010 ​MARC4 New Era

LED Lenser Flashlights ​Leatherman Tool Group

Hubco Automotive ​​Yakima Nov. Acquires TracRac Thule

Gear For Sports Hanesbrands Oct. ​Arena ​ ​ The Riverside Company ​Lone Wolf Knives Benchmade Knife Company ​​Ross Outdoor Sports Specialties 3M Sept.

Pal’s Sports Center

Sport Supply Group

Tapout ​Authentic Brands Group

Anaconda Sports ​Genesco (Lids Sports) Aug. West 49 ​Billabong

Sport Supply Group ​Oncap Management Partners

OutDry Technologies ​​Columbia Sportswear

FORM Athletics K-Swiss July Haglofs

Asics

RVCA Billabong

Delong ​ ​Rock Creek Athletics ​ ​The Designated Hitter ProMounds ​​Nokona Cutters ​​The Cotton Exchange Delta Apparel June ​Bette & Court Golf Sport-Haley

Cobra Golf ​ Puma ​Maverik Lacrosse Bauer Hockey ​​Mountain Khakis ​Remington Arms ​​Becker Surf and Sport Billabong May Sports Avenue ​Genesco (Lids Sports) ​Kattus Pro Team Sports Sport Supply Group

Note: (1) indicates deal approval / closing pending

MONTH YEAR

ACQUIRED COMPANY

BUYER

​ The Athlete’s Foot Levine Leichtman Capital ​Partners ​ Brand Athletics Genesco (Hat World) ​Coach’s Sports Corner ​Sport Supply Group ​ Greg Larson Sports Sport Supply Group ​ Black Diamond Clarus Corp ​ Gregory ​Clarus Corp

Lendal ​Celtic Paddles ​Dragonfly Innovation Corp.

Lifetime Products April Sportsstuff ​ Kwik Tek March Body Bar ​ Craig Williams Feb. Integral Designs Equip Outdoor Technologies (Rab) ​ ​Cloudveil Windsong Brands

JT Sports ​ KEE Action Sports Jan. Soffe Accessory Assets EMC Sports ​​Merkel ​Steyr Arms ​ ​ ​ ​Above The Rim Collective Brands ​AmeriBag ​ Cerf Brothers Bag Co.

Isis for Women Kellwood ​​Talon Lacrosse ​ Easton-Bell Sports

Barnes Bullets ​ Freedom Group (Remington) Dec. 2009 Pro-Line Athletic Badger Sport

Yakima Kemflo International Co. ​ Zappos.com ​ ​Amazon.com

Swell.com ​ Billabong

Brunton Fenix Outdoor

Joystick Skiing Surface Ski Collaboration, LLC. ​Oval Concepts Advanced Sports Nov. Highgear ​ ​Implus Footcare

Sports Fan-Attic Genesco (Lids Sports) ​Rugged Shark ​​SG Footwear Oct. Hot Wheels/Circle Bikes Dorel Industries Sep. ​​Great Plains Sports ​Genesco (Lids Sports) Aug. 5th & Ocean New Era Cap ​ Gemini Bicycles Dorel Industries July Iron Horse Bicycle Co. ​Dorel Industries ​Har-Bell Athletic Goods ​Sport Supply Group ​

Eddie Bauer ​Golden Gate Capital June Gus Doerner Sports ​Sport Supply Group

Webster’s Team Sports Sport Supply Group May Forefront Holdings Dynamic Brands ​END Footwear LaCrosse Footwear ​​Snosuit Frabill April Tacktick ​ Suunto

Gekko Brands Delta Apparel ​​Terry Precision Bicycles Elisabeth Robert March Impact Sports Hat World Jan. ​Zoot Sports ​ Jarden Outdoor (K2 Sports) ​Chaco Wolverine World Wide ​Cushe Wolverine World Wide ​Ahnu Deckers Outdoor Corp. ​Little Hotties Warmers Implus Footwear

RackandRoll ​Yakima

Baird noted that while weaker companies are still being ignored, strong brands or companies are receiving premiums due to a dearth of quality opportunities amid all the buyers.

“If your objective is to maximize valuation, I do believe now is a pretty good time,” said ​Baird. “I wouldn’t say we turned a corner but it feels the recession is largely behind us. And while I’ m not going to say people are throwing money around the way there were in 2007, the pricing environment seems to be pretty strong.”

For many brands, moreover, are reaching the stage in their development where partnering with a larger player and tapping into their resources can to help them reach that next level of growth.

The greater sourcing challenges have become a newer lever to encourage such partnering up.

Pellegrini said that while there’s been a few casualties over the years, the recent track record of mergers – citing Merrell with Wolverine, Converse with Nike, and both The North Face and Vans with VF – gives sellers confidence.

“People have seen how you can take a brand and plug it into the right kind of infrastructure with the right kind of support and create significant growth,” said Pellegrini.

IPO MARKET REAWAKENS Another option for prospective companies looking to sell is to go public via an IPO although Pund describes that market as still lagging behind the general M&A market and much more “fickle” overall. Freedom Group, the owner of Remington Arms, postponed their planned IPO earlier this year but Bauer went public last year on Toronto’s stock exchange and pending offerings at press time are scheduled for action sports chain Tilly’s, bicycle component giant SRAM International, and Skullcandy, the maker of maker of audio headphones and accessories geared toward the action sports and outdoor world.

Pund said the pros of going public are that the owners typically don’t have to sell majority ownership in the company – unlike most strategic and PE deals – and may wind up earning more back on their sweat equity through follow-on offerings in the future if the business continues to perform. That said, the IPO market, except perhaps for social media firms, is still not as robust as it once was and the costs and requirements of an offering and being a public company continue to skew the market towards larger business that can better support those costs and reporting requirements.

The investment bankers caution that any pullback in bank funding could quash the thirst for M&A deals.

The Greek debt crisis, the U.S.’s own debt ceiling and another terrorist strike are just a few issues that could easily rattle the U.S.’s shaky economic recovery.

Pund believes that current M&A activity would be even more robust if not for the ongoing uncertainty about the economy and its impact on consumer spending.

“It’s getting better every day but I don’t think the M&A activity is anywhere near what it was like in 2007, which was obviously a 16

SGB WEEKLY AUGUST 8, 2011

“It might be a good time to sell if you’ve got a solid, proven business, if you don’t feel a huge urgency, and if your expectations for valuation are realistic,” Kira Spivak, owner of CFO Services

record breaker,” said Pund. “Unemployment is still high. Housing prices are still very low. And so when people are uncertain where their next paycheck may come from and worried about their own net worth, be it savings or the depressed equity in their homes, that’s going to impact their buying habits and that translates to less sales growth for outdoor companies.”

That said, Pund believes the M&A market continues to improve and part of that improvement is because the market rewards entrepreneurs for bringing innovation to the marketplace, while motivating the next group of entrepreneurs to drive future innovations and be rewarded with a high payout for that success. ​“Succesful transactions help support the vitality of the industry by providing a reward to entrepreneurs for product innovation and brand strength, and in turn larger companies can further support the growth of those brands and products thereby providing consumers with better choices for them to spend their money on,” said Pund.

Admitting that he’s a capitalist, Pellegrini agreed that M&A first off provides entrepreneurs the opportunity to realize a payback for their successes. For the brands, financial buyers often provide growth capital typically at the early stages of their growth while strategics provides “great homes” for more-developed ones to take them to the next level.

“As long as acquirers are taking time and really thinking long and hard about the integration strategy, I think it’s good,” said Pellegrini.

“We are living in a world where just having a brand sitting in a shelf because it’s recognized is not enough It has have a meaning and connection to the consumer. So I have every high hope that these acquirers are going to deploy resources and intelligence to make the brands stronger and operations better.”

Baird believes M&A and consolidation are “inevitable.”

“Brands and companies will be bought up and folded into larger strategics and whether those companies will succeed or execute well with them is a mixed bag,” said Baird. “At the same time, there will always be innovation in the lower middle market where’s there’s new products and new product categories that drive growth ala the barefoot running movement and that just kind of continues. So it’s neither good nor bad.” ■

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