Skechers So Hot That It May Be Worth a Look for Nike: Real M&A
2015-06-24 21:08:49.983 GMT
(For a Real M&A column news alert: {SALT REALMNA <GO>}.)
By Tara Lachapelle
(Bloomberg) -- In case you missed it, Skechers U.S.A. Inc.
is on fire.
Shares of the sneaker maker have doubled in just six
months, giving it an almost $6 billion market value. Its revenue
gains -- led by women’s sporty, slip-on shoes -- have been
beating every competitor. The company is now headed for record
profit in the third quarter.
“I sure like the way the stock’s gone up,” said Gary
Bradshaw, a Dallas-based fund manager for Hodges Capital
Management Inc., which owns Skechers shares among the $3 billion
it oversees. “They’ve kind of caught this fashion trend just
right.”
Just last month, Skechers surpassed sportswear giant Nike
Inc.’s valuation relative to earnings before interest, taxes,
depreciation and amortization. Before Skechers gets any more
expensive, it might make sense for a competitor such as Nike to
make an offer. The $91 billion industry leader still dwarfs
Skechers in size and has almost enough cash on its balance sheet
to cover a takeover.
Adidas AG, the $17 billion German athletic footwear maker
that owns Reebok, is under pressure to take back market share
from Nike. Skechers would give either company a way to get in on
the growing market for fashionable walking shoes and reach
different customers at a lower price point.
Skechers “is well run and could be on someone’s radar,”
said Barry James, chief executive officer at James Investment
Research in Xenia, Ohio.
Insider Ownership
The biggest question is whether Skechers’ founder Robert
Greenberg, who was 75 as of April, would be open to selling his
company. Greenberg, who also developed the L.A. Gear brand, is
chairman and chief executive officer of Skechers. His son
Michael, 52, is president, and his other son Jeffrey, 47, is in
charge of active electronic media. They all serve on the board
and, with the family estate trustee, control more than 70
percent of the voting power.
“It might be a little early to think that they would
necessarily be wanting to sell the company,” said Jeffrey Van
Sinderen, an analyst at B. Riley & Co. “But it could be
attractive to private equity or a strategic buyer. They have a
brand and have established it even more so over the past several
years. They have a nice niche.”
Jennifer Clay, a spokeswoman for Skechers, declined to
comment on whether the company has received takeover interest or
has considered a sale. Representatives for Nike and Adidas
didn’t respond to requests for comment.
Stock Surge
While the stock has been rising since 2012, its biggest
gains have come this year. The share price has already doubled
in 2015, adding to last year’s 67 percent surge.
Analysts forecast an additional 10 percent upside to the
current stock price over the next 12 months. That means it may
continue to outperform Nike and Adidas, as well as Under Armour
Inc., Steven Madden Ltd. and Foot Locker Inc., according to
share-price estimates compiled by Bloomberg.
Apparel companies rarely do mergers. One of the few cases
was last month, when Ascena Retail Group Inc. agreed to acquire
Ann Inc., bringing together the Lane Bryant and Ann Taylor
brands.
Nike also hasn’t traditionally done deals this large and
doesn’t need Skechers. Its biggest purchase, the 2007 deal for
Umbro Plc, was only $619 million. It later sold the English
maker of soccer cleats.
But Nike’s motivation behind its 2003 purchase of Converse
Inc. may be most similar to what its rationale could be for
buying Skechers: the desire to capture a growing market. At the
time of the $332 million Converse acquisition, Nike’s U.S. shoe
sales were declining. Converse was a way for it to grab hold of
classic footwear such as Chuck Taylors, which were gaining in
popularity.
Comfort Shoes
Skechers recently introduced a line of running shoes that
are catching on. Olympic runner Meb Keflezighi wore them when he
won the 2014 Boston Marathon and finished eighth in 2015. Like
its other products, Skechers running shoes are cheaper than most
other brands.
It’s also added memory foam to certain comfort shoes,
helping it target older customers that competitors such as Nike
don’t typically focus on.
While Nike’s sales are still expanding, the company has
gotten so large that the pace of gains could start to slow.
Analysts project an average annual growth rate of about 7
percent for the next five years, down from an average of 10
percent during the last decade.
Estimates for Skechers only go out as far as 2017. During
that time, its sales may climb an average of 18 percent per
year.
With borrowing costs still so low, a deal would be
accretive. An all-cash offer even at a 35 percent premium --
about $151 a share -- would immediately boost Nike’s earnings
per share, data compiled by Bloomberg show. And that’s without
estimating any cost cuts it could make.
Now, let’s see if these sneakers are made for dealmaking.
For Related News and Information:
How a Marathon-Winning Kick Has Played for Skechers
Merger calculator: MRGC <GO>
Real M&A columns: NI REALMNA <GO>
Top deal stories: DTOP <GO>
To contact the reporter on this story:
Tara Lachapelle in New York at +1-212-617-8911 or
tlachapelle@bloomberg.net
To contact the editors responsible for this story:
Beth Williams at +1-212-617-2307 or
bewilliams@bloomberg.net
Elizabeth Wollman
2015-06-24 21:08:49.983 GMT
(For a Real M&A column news alert: {SALT REALMNA <GO>}.)
By Tara Lachapelle
(Bloomberg) -- In case you missed it, Skechers U.S.A. Inc.
is on fire.
Shares of the sneaker maker have doubled in just six
months, giving it an almost $6 billion market value. Its revenue
gains -- led by women’s sporty, slip-on shoes -- have been
beating every competitor. The company is now headed for record
profit in the third quarter.
“I sure like the way the stock’s gone up,” said Gary
Bradshaw, a Dallas-based fund manager for Hodges Capital
Management Inc., which owns Skechers shares among the $3 billion
it oversees. “They’ve kind of caught this fashion trend just
right.”
Just last month, Skechers surpassed sportswear giant Nike
Inc.’s valuation relative to earnings before interest, taxes,
depreciation and amortization. Before Skechers gets any more
expensive, it might make sense for a competitor such as Nike to
make an offer. The $91 billion industry leader still dwarfs
Skechers in size and has almost enough cash on its balance sheet
to cover a takeover.
Adidas AG, the $17 billion German athletic footwear maker
that owns Reebok, is under pressure to take back market share
from Nike. Skechers would give either company a way to get in on
the growing market for fashionable walking shoes and reach
different customers at a lower price point.
Skechers “is well run and could be on someone’s radar,”
said Barry James, chief executive officer at James Investment
Research in Xenia, Ohio.
Insider Ownership
The biggest question is whether Skechers’ founder Robert
Greenberg, who was 75 as of April, would be open to selling his
company. Greenberg, who also developed the L.A. Gear brand, is
chairman and chief executive officer of Skechers. His son
Michael, 52, is president, and his other son Jeffrey, 47, is in
charge of active electronic media. They all serve on the board
and, with the family estate trustee, control more than 70
percent of the voting power.
“It might be a little early to think that they would
necessarily be wanting to sell the company,” said Jeffrey Van
Sinderen, an analyst at B. Riley & Co. “But it could be
attractive to private equity or a strategic buyer. They have a
brand and have established it even more so over the past several
years. They have a nice niche.”
Jennifer Clay, a spokeswoman for Skechers, declined to
comment on whether the company has received takeover interest or
has considered a sale. Representatives for Nike and Adidas
didn’t respond to requests for comment.
Stock Surge
While the stock has been rising since 2012, its biggest
gains have come this year. The share price has already doubled
in 2015, adding to last year’s 67 percent surge.
Analysts forecast an additional 10 percent upside to the
current stock price over the next 12 months. That means it may
continue to outperform Nike and Adidas, as well as Under Armour
Inc., Steven Madden Ltd. and Foot Locker Inc., according to
share-price estimates compiled by Bloomberg.
Apparel companies rarely do mergers. One of the few cases
was last month, when Ascena Retail Group Inc. agreed to acquire
Ann Inc., bringing together the Lane Bryant and Ann Taylor
brands.
Nike also hasn’t traditionally done deals this large and
doesn’t need Skechers. Its biggest purchase, the 2007 deal for
Umbro Plc, was only $619 million. It later sold the English
maker of soccer cleats.
But Nike’s motivation behind its 2003 purchase of Converse
Inc. may be most similar to what its rationale could be for
buying Skechers: the desire to capture a growing market. At the
time of the $332 million Converse acquisition, Nike’s U.S. shoe
sales were declining. Converse was a way for it to grab hold of
classic footwear such as Chuck Taylors, which were gaining in
popularity.
Comfort Shoes
Skechers recently introduced a line of running shoes that
are catching on. Olympic runner Meb Keflezighi wore them when he
won the 2014 Boston Marathon and finished eighth in 2015. Like
its other products, Skechers running shoes are cheaper than most
other brands.
It’s also added memory foam to certain comfort shoes,
helping it target older customers that competitors such as Nike
don’t typically focus on.
While Nike’s sales are still expanding, the company has
gotten so large that the pace of gains could start to slow.
Analysts project an average annual growth rate of about 7
percent for the next five years, down from an average of 10
percent during the last decade.
Estimates for Skechers only go out as far as 2017. During
that time, its sales may climb an average of 18 percent per
year.
With borrowing costs still so low, a deal would be
accretive. An all-cash offer even at a 35 percent premium --
about $151 a share -- would immediately boost Nike’s earnings
per share, data compiled by Bloomberg show. And that’s without
estimating any cost cuts it could make.
Now, let’s see if these sneakers are made for dealmaking.
For Related News and Information:
How a Marathon-Winning Kick Has Played for Skechers
Merger calculator: MRGC <GO>
Real M&A columns: NI REALMNA <GO>
Top deal stories: DTOP <GO>
To contact the reporter on this story:
Tara Lachapelle in New York at +1-212-617-8911 or
tlachapelle@bloomberg.net
To contact the editors responsible for this story:
Beth Williams at +1-212-617-2307 or
bewilliams@bloomberg.net
Elizabeth Wollman