Outdoor retailer Kathmandu is looking to add some summer to its business, unveiling a plan to purchase beachwear brand Rip Curl for $350 million.
The prospective deal, announced Tuesday, will require shareholder approval, but is slated to further consolidate the outdoor-wear market following the acquisition of Rip Curl-competitor Billabong by US-based Boardriders last year.
ASX-listed but New Zealand-based Kathmandu on Tuesday said the deal would help diversify and balance its traditionally winter-focused range, enabling it to leverage Rip Curl’s established presence in North America and Europe.
Kathmandu, which last year doubled down on international expansion with the purchase of footwear business Oboz, could become a NZ$1 billion ($930 million) business if the deal proceeds, expanding its global store footprint to 595.
Kathmandu booked $545 million in revenue last financial year — meaning the purchase could effectively double its annual revenue.
Kathmandu chief executive Xavier Simonet said the deal would “transform” the business, in a statement circulated to investors on Tuesday morning.
“The combination of Kathmandu, Oboz and Rip Curl achieves diversification in product, channel, geography and seasonality, and creates a platform for the acceleration of our brands, global expansion into new channels and markets,” he said.
Kathmandu has proposed a mix of capital raising ($138 million), debt financing ($220 million) and a $31 million placement of new shares to the founders and chief executive of Rip Curl to fund the proposed purchase.
Rip Curl chief executive Michael Daly would continue to lead the business from Torquay, Victoria if the transaction goes ahead, with the businesses expected to pursue shared functions where “operational value can be derived”.
“We are excited about the opportunity to partner with another iconic Australasian brand that shares our vision of creating high-quality functional products,” Daly said in a statement circulated by Kathmandu on Tuesday.
Kathmandu has emerged as a winner during troubled times for the retail sector in Australia and abroad in recent years, booking a $57.6 million profit for the last financial year, up 13.6% on the back of its purchase of Oboz and ongoing efforts to expand its global footprint.
Its proposal to purchase Rip Curl is being billed by the company as a continuation of that strategy amid a period of consolidation for the retail sector that has seen myriad other Australian apparel companies acquired over the last 18 months.
While Billabong was last year acquired by Quiksilver’s owner Boardriders, Noni B group also snapped up brands such as Rivers, Katies, Millers, Crossroads and Autograph in a $31 million deal in 2018.
Retail expert Brian Walker of the Retail Doctor Group tells SmartCompany the period of consolidation is a “very predictable” outcome of rapid changes to retail business models globally.
“Rip Curl is a global brand, but there’s no doubt it’s been in challenging times over the last few years,” Walker says.
“It’s a risky play.”
Walker says the deal, proposed at 7.3 times Rip Curl’s financial year 2019 earnings, is cheaper than what the 50-year-old company would have gone for at its peak.
“I would have thought, in its heydey, that would have been a bit low,” Walker says of the $350 million price tag.