global sportwear sector m&a update. spring 2013. norgestion mergers alliance
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Global Sportswear SectorM&A update
Spring 2014
“The sports apparel market continuesto evolve and companies that wish tomaintain or grow share need to leadwith innovation. Consumers aredemanding functional apparel thathas a combination of performance,fit and fashion. The sports apparelmarket now accounts forapproximately 25% of the overallclothing market in the US and mostindustry leaders believe the trend ofmen and women increasingly wearingathletic apparel in casual settings is apermanent shift in the broad appealof functional apparel.”
William HarrisonManaging DirectorHead of Consumer Investment BankingHeadwaters MB
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Favorable trends continue to drive substantial growth in the global sportswear sector,which captures performance, outdoor and sports-inspired clothing and footwear. A highlyfragmented market supports broader consolidation, where niche players and iconic brandsrepresent prime acquisition targets for both financial sponsors and strategic acquirers alike.
The key observations from our research:
Sector growth is strongRising levels of health and wellness awareness globally and increasedsports participation rates, as well as product innovations (such aslightweight, breathable micro fibers) are driving substantial growth inthe sector.
Acquirers have a diverse set of objectivesM&A activity is cross-border and is being driven by a number of factorsincluding acquirers’ desire to procure new technologies, capturegrowth opportunities in developed and emerging markets and expandinto new product categories.
Strategic M&A outlook is favorableNiche players and iconic brands are prime acquisition targets forstrategic players, which can provide strong marketing and distributionexpertise to increase scale and drive higher margins.
Private equity (PE) sponsors are active industry participantsPE continues to target the sportswear industry due to the favorableoutlook for the sector, as well as generally constrained capital forsmaller players where increased financial resources can lead tosubstantial growth opportunities both organically and through roll-upstrategies. Sponsor exit activity through initial public offerings (IPOs)and M&A has also gained momentum as valuations have rebounded.
Fragmented sector creating M&A opportunities
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The global sportswear market is showingclear and powerful underlying trends,which over time have provided strongtailwinds for sector growth. While theUS market remains the most importantsportswear market by size, sportswearis increasingly becoming a global,emerging markets story with growthin such regions expected to reachhigh-single to mid double-digit pace overthe next few years. Major trends in theindustry include:
Rising health and wellnessawareness globallyConsumers are trying to lead moreactive lifestyles and becomingincreasingly focused on healthy living,embracing health and wellness as animportant part of their routine. Thistrend is also supported by theincreasing influence of businesses andorganizations including employers,insurers and retailers that continue toinstitute health and wellness programsto encourage better health.
Increasing active sportsparticipation ratesSports participation rates are increasing,driven by the rising healthconsciousness of consumers (seeFigure 1). The dramatic surge of female
athletes into playing fields and theassociated opportunities havecontinued to shift market dynamics.Increased participation have allowedkey industry players and new entrants(such as athletic apparel specialistLululemon) to capture significant marketshare in the women’s segment of thesportswear market. According to theNational Sporting Goods Association(NSGA), increased participation rateswere largely driven by females with40 of the 47 activities tracked havingincreased female participation,compared to only 11 activities trackedshowing increased male participation.
Development of innovative andtechnically advanced productsThere is growing awareness andincreasing levels of consumer attentionon the technology used in sportswear,where performance fabrics such aslightweight, breathable micro fibershave gained attention amongconsumers. Consumers have showna willingness to pay more forperformance characteristics such astemperature control, friction regulation,moisture management and waterresistance to reduce the potential forinjury and discomfort.
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Increasing consumerbase is supporting
growth globally
Figure 1: US sports participation and growth
%Re
spon
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s
% Participation Rate
15%100%
75%
50%
25%
0%
10%
5%
0%
-5%
-10%
-15%
% Change
Exerc
iseWalk
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Swimming
Aerobic
Exerc
ising
Bicycle
Riding
Runnin
g/Jog
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Work-O
utat
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Yoga
GolfSoc
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Cross Cou
ntry)
%Ch
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Prio
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Source: NSGA
Long-term trends driving global sportsweargrowth
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Demand from lifestyleconsumers is rising
With functionality and versatility paramount,vendors have responded with stylishclothing for both men and women to gofrom the gym to the streets. The expansionof overall usage contributes to increasingspending on fitness products, while theamplified focus on style necessary tocaptivate the target audience generateshigher margins.
At US$263 billion in global retail sales in2013, sportswear sales constitute 15.3% of
the overall clothing market. Sportswearsales are estimated to have grown by 6.9%from 2012 to 2013, significantly outpacingoverall apparel sales growth of 5.1% overthe same time period. Compared to theglobal apparel market, which is projected togrow at a respectable 6.1% CAGR from2013 through 2017, the growth prospectsin the global sportswear market are slightlymore favorable – projected to grow at a7.5% CAGR through 2017 (see Figure 2).
Figure 2: Global sportswear market by region – 2013sales and 2013-2017 forecast CAGR
Source: Euromonitor. 2013 sales estimated
North AmericaUS$91 billion (3.7%)
AustralasiaUS$4 billion (3.1%)
Eastern EuropeUS$16 billion (13.6%)
Middle East/AfricaUS$15 billion (10.1%)
Western EuropeUS$53 billion (4.0%)
Asia PacificUS$56 billion (8.9%)
Convergence of casual designwith athletic performanceThe connection between sportswearand fashion is steadily obscuring thedifference between casual and activesports apparel. Women in particular havedemonstrated an appetite for fashionableworkout wear. Increased emphasis onversatility, convenience, fashion, comfortand style have created a strong demandfor sports and fitness apparel that offerboth functional performance and styleappeal. As a result, sports apparelmanufacturers are capitalizing on thetrend by developing styles conducive toboth athletic activity and general wearthat allow manufacturers and retailersto charge significantly higher prices.
Globalisation supporting strong growth
“When I was running Reebok, we wereaware of Under Armour but did not thinkthey had a huge competitive advantage.What we underestimated was athletes'need for even a slight competitiveadvantage and their willingness to pay apremium for those products. Now UnderArmour is worth over $10 billion becausethey listen to their customer and developamazing products. It is exciting to knowthat the next Under Armour or Nike isprobably being developed in someenthusiasts garage right now.”
Jay MargolisFormer President and COO of Reebok
Latin AmericaUS$28 billion (16.6%)
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Product innovation iskey to maintaining
demand
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Figure 3: Top global sportswear companies by revenue
Source: Capital IQ, HWMB analysis
Industry is fragmentedDespite the presence of a handful oflarge international and regional players,the sportswear market generallyremains relatively fragmented in keyregions of the world.
Significant players in the industry (totalrevenue greater than US$2 billion) includeNike, Adidas, V.F. Corporation, Puma,Amer Sports and Under Armour(see Figure 3). The remainder of the marketis primarily comprised of smaller firmswith strong local brand recognition, butwith limited resources to develop a broadermarket presence.
Niche players and iconic brands, such ascold weather outerwear specialist CanadaGoose, which was acquired by Bain Capitalin December 2013, are prime acquisitiontargets for financial sponsors and strategicplayers that can provide strong marketingand distribution expertise, as well asthe requisite financial resources to growthe business.
Prior to the global financial crisis, thesportswear sector experienced a relativelyhealthy acquisition pace in both the hard
and soft goods categories. Subsequently,the larger players have shifted to more of aninternal focus with organic growth drivingexpansion across international markets andnew product categories. The larger industryplayers have also shown an increased focuson profitability and cost efficiency, which hasincluded implementing strategies tooptimize the supply chain, improveinventory management, reduce lead timesand improve product quality. Scale mattersand the large brands are focused onchasing growth in emerging markets bybuilding out their delivery platforms in highgrowth markets and selectively pursuingacquisitions that fill a gap in eithertechnology or a product category.
Long-term success in the sportswearindustry will be driven by productinnovation, where companies have focusedon providing technical advancementsbalanced by aesthetic design to drive brandrecognition, revenue growth and highergross margins. Smaller industry playerswith innovative designs and niche brands,but which lack the financial resources toexpand, have a history of being acquired.
Company Headquarters Market Total EBITDA EBITDA TEV/LTM Geographic Number ofCapitalization Revenue (US$m) Margin % EBITDA Segments Acquisitions(US$m) (US$m) (past 5
years)
Nike US 62,515 26,286 4,093 15.6 14.3x Global -
Adidas Germany 23,503 19,465 1,864 9.6 12.6 Global 4
V.F. Corporation US 24,653 11,163 1,872 16.8 14.1 US/West Euro 3
PUMA Germany 4,201 4,185 148 3.55 25.6 Global 4
Amer Sports Finland 2,405 2,942 271 9.23 11.2 Global 3
Under Armour US 11,078 2,332 316 13.5 34.4 US 1
Lululemon Athletica Canada 6,456 1,556 456 29.3 13.0 North America 1
ANTA Sports China 3,408 1,149 245 21.3 11.1 China 2
Li Ning China 1,061 943 (268) (28.4) - China 1
Geox Italy 1,084 995 41 4.1 26.7 Western Europe -
Xtep International China 1,091 821 159 19.4 4.4 China -
Moncler Italy 5,033 751 241 32.1 22.3 Global -
361 Degrees China 541 664 88 13.3 1.9 China -
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M&A by largecorporates has astrategic focusMerger and acquisition activity
is occurring at a modest pace,is cross-border and is being drivenby a number of factors.
Buyers are using acquisitions to diversifyboth product and geography business mix,add higher margin products to their portfolioand leverage established platforms todeepen their position in the global market.
Acquire new technical innovationsand R&D capabilitiesNiche players, including those companiesthat have made key technologicalinnovations, are a focus of leadingplayers in the sportswear industry.
In 2013, US-based Under Armouracquired MapMyFitness, which utilizesGPS and other advanced technologiesto provide users with the ability to map,record and share their workouts. TheUS$150 million acquisition uniquelypositions Under Armour at the forefrontof sports and technology to delivergame-changing solutions for howathletes train and perform. Thetechnology will deepen Under Armour’sdigital capability, offering athletes anelevated training experience throughnew digital products and platforms.
Expand into new product categoriesLarger acquirers are focusing oncompanies with a deep categoryunderstanding, enabling a larger acquirerto leverage established platforms togrow the topline, while instituting moreefficient expense management systemsand supply chain capabilities to reduceoperating and sourcing costs.
In 2013, US-based Authentic BrandsGroup (ABG) announced the acquisitionof US-based Spyder, an outdoor ski andsnow brand. Spyder represented the firstoutdoor and winter sports brand inABG's portfolio. ABG’s focus of thetransaction is to initiate global growthwhile ensuring that the domestic
business is further cultivated in the US.The acquisition will allow ABG tostreamline Spyder’s current businesswhile expanding the brands intonew markets.
Strengthen capabilities in existingcategoriesTraditional sportswear companies havebeen active in acquisitions of lifestyletype brands, expanding beyond sportinggoods and sportswear where popularconsumer appeal drives higher margins.
In 2011, Finnish company Amer Sportsacquired Iceland-based Nikita forUS$10 million, a snowboarding inspiredaction sports apparel brand whichfocuses on female consumers. Theacquisition was in line with Amer Sports’strategic priority to grow faster in softgoods and has allowed the company toexpand its presence in the action sportscategory. While Nikita’s sales are mostlyin Europe, Amer has leveraged the scaleof its brands in design and go-to-marketactivities to grow the category andincrease market share amongst itsfemale consumers.
Acquire niche products with provenbrandsActivity is focused on leading, iconicbrands where larger marketing spendand wider distribution channels canexpand a target’s business, while stillpreserving the brand's unique cultureand positioning in the market.
In 2012, US-based Polaris Industriesannounced the US$46 million acquisitionof Teton Outfitters, an Americancompany that engages in design,development and manufacturing ofmotor sports apparel for the snowmobileand motorcycle riders under the KLIMbrand. Polaris will maintain the KLIMbrand, whose strengths are expected tocomplement Polaris’ existing businessand provide a more complete apparelline-up to flourish in the global market.
Diverse M&A objectives across thesportswear sector
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Record valuationsare supportingfurther M&A
M&A activity will continue to increaseas large companies target technicalinnovators, leverage establishedplatforms to grow smaller brands andchase growth in emerging markets.
Such a trend is supported by a sizeableuniverse of attractive smaller assets thatfulfill the diverse acquisition objectives oflarger industry players. Record high
valuations in the sportswear industryprovide a strong acquisition currency andmay induce sellers to pursue strategicalternatives (see Figure 4). The substantialpresence of smaller players in the industryshould also prompt consolidation as theylack the financial resources and economiesof scale necessary to compete with thelarger industry players.
Outlook suggests M&A will continue
Source: Capital IQ
Figure 5: Selected sportswear M&A transactions
Source: Capital IQ, HWMB analysis
Figure 4: Global compositesportswear EV / EBITDAmultiples
Announced Target Target Acquirer Acquirer Deal Value DealCountry Country (US$m) Type
Dec-13 Canada Goose Canada Bain Capital USA - Private Equity
Nov-13 MapMyFitness USA Under Armour USA 150 Strategic
Aug-13 SPYDER USA Authentic Brands Group USA - Strategic
Jul-13 DAKINE Australia Altamont Capital Partners USA 65 Private Equity
Dec-12 Teton Outfitters USA Polaris Industries USA 46 Strategic
Jul-12 Helly Hansen Norway Teachers' Private Capital Canada 328 Private Equity
May-12 inov-8 Ltd UK ISIS Equity Partners UK n/d Private Equity
Jan-12 Li Ning China TPG Capital USA - Private Equity
Dec-11 Nikita Iceland Amer Sports Finland 10 Strategic
Dec-11 Wiggle Ltd UK Bridgepoint Capital Group Ltd UK 314 Private Equity
Dec-11 Paris Glove Canada New Wave Group AB Sweden 16 Strategicof Canada Ltd
Nov-11 Five Ten U.S. USA Adidas AG Germany 38 Strategic
Jun-11 Timberland USA V.F. Corporation USA 2,226 Strategic
Jun-11 Moncler Italy Eurazeo France 1,371 Private Equity
Jul-10 HAGLÖFS Sweden ASICS Japan 133 Strategic
May-10 New Harbour Yoga Australia Lululemon Athletica USA - Strategic
“The consumer continues toseek sport-specific functional apparelthat allows the user to optimizetheir experience and performance.Design and functionality continuesto improve and consumerexpectations are at a high level dueto great products being producedby both large and niche players.”
Gary KiedaischFormer CEO of Coleman and Bauer Nike
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2007 2008 2009 2010 2011 2012 2013
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Global Sportswear Sector M&A update
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Private equity provides capital andoperational expertise
PE attracted toplatform investments
PE activity is modest and focusedon acquiring iconic brands whereinternational expansion opportunitiesare favorable.
Bain Capital purchased Canada Goosein 2013 in order to help its furtherdevelop in international markets andprovide the necessary capital to fund itscontinued expansion.
Also in 2013, Altamont Capital Partnerspurchased outdoor clothing specialistDAKINE, attracted to its quality brandand strong track record. Altamont alsoparticipated in the simultaneousrecapitalization transaction of Billabong,from which DAKINE was purchased.Altamont is also invested in Mervin, aleading producer of snowboardingequipment, a carve-out from Quiksilver.
TPG invested in Li Ning in 2012,providing much needed capital to LiNing and gaining access to middle classconsumption in China. At the time of the
investment, Li Ning indicated it woulduse the money to develop brands, rollout new stores and support workingcapital. Subsequent to the initialtransaction, TPG has restructured themanagement team and improvedoperations against a difficult operatingenvironment for Li Ning.
The sportswear industry’s fragmentedstructure and smaller niche operatorsoffer a target rich environment forplatform acquisitions. PE is focused onproviding operational and financialsupport to further assist in the executionof organic growth strategies, especiallytargeting expansion in high growthemerging markets.
There have been a handful of successfulrecent PE backed exits. Eurazeo’spartial exit in December of Moncler wasone of the best performing IPOs of2013, which was priced at the top ofthe range and advanced 47% on itsinitial day of trading.
Deal background
Ariat has grown rapidly since its origins to theearly 1990s by leading the industry in continuousproduct innovation and delivering high-qualityproducts with differentiated performancecharacteristics.
Ariat has diversified from its base in Western andEnglish boots into related footwear and extendedits brand into denim, apparel and accessories.
By building on its market leadership in the US,Ariat has expanded into key internationalmarkets and established itself as one of thefastest-growing equestrian brands in Europe,the UK and Australia.
Ariat’s iconic brand, significant growth trajectoryand leading position in the global equestrian marketpresented the Fisher family with an extremely attractiveopportunity to deepen further their partnership.
Ariat’s expanded partnership with the Fisher family,who have deep apparel industry experience, willprovide a strong strategic foundation for Ariat’slong-term expansion plans.
Ariat’s successful transition into crossover apparel andaccessory lines highlights the increasing trend of sportswearparticipants to capitalize on consumer preferences to wearfitness products outside of their traditional domain. Inpartnership with the Fisher family, Ariat will continue toinnovate and expand into new markets.
CASE STUDY: Ariat sale to the Fisher familyIn 2012 Ariat International was sold tomanagement and the Fisher family, the foundersof Gap. The sale was an exit for LNK Partners andBrentwood Associates (terms were not disclosed).
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Contacts Specialist advice on call… For information on sportive apparel sector trends
Omer UnsalManaging Director, Turkey
Telephone: +902 1221 155 240Email: [email protected]
Leonardo AntunesManaging Director, Brazil
Telephone: +55 21 2543 5409Email: [email protected]
Oscar SanchezPartner, Spain
Telephone: +34 944 352 311Email: [email protected]
Fausto RinalloPartner, Italy
Telephone: +39 02 92 88 04 00Email: [email protected]
Hakan PerssonManaging Partner, Sweden
Telephone: +46 831 8050Email: [email protected]
Mark BondManaging Partner, Russia
Telephone: +7 495 721 1370Email: [email protected]
Owen HultmanGeneral Manager, Japan
Telephone: +81 368 955 521Email: [email protected]
Michael FabichManaging Partner, Germany
Telephone: +49 661 205 4810Email: [email protected]
Piotr OlejniczakDirector, Poland
Telephone: + 48 22 2369200Email: [email protected]
Alexander EbinDirector, France
Telephone: +33 148 246 300Email: [email protected]
Bill HarrisonManaging Director – Head of Consumer, United States
Telephone: +1 303 572 6000Email: [email protected]
Steve CurriePartner, United Kingdom
Telephone: +44 20 7881 2990Email: [email protected]
Bart JonkmanManaging Director, Benelux
Telephone: +31 73 623 8774Email: [email protected]
Dan LioutasManaging Director, Canada
Telephone: +1 416 496 3075Email: [email protected]
With a global sportswear sector team, the Mergers Alliance partners are expertly placed to offer advice.In particular, we offer:
Advice on structuring and completing deals in the global sportswear marketIdentifying acquisition opportunities around the worldInformation on sector trends and valuationsAccess to corporate decision-makers and owners
Join the mergers and acquisitions discussion
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Selected Mergers Alliance deals
Recapitalized by
Sold to Management buy-out from
Management buy-out