Bauer swinging deal for baseball domination
Hockey equipment-maker acquires Easton-Bell unit as part of aggressive growth
Bauer Performance Sports, the first company to fix skate blades permanently to boots, plans to score in baseball after conquering the market for hockey gear.
Bauer, founded in Kitchener, Ont., in 1927, has boosted its share of the global hockey equipment-market to 53 per cent from about 30 per cent in 2008. The company has similar growth plans for baseball after it closes a $330-million (U.S.) deal to buy Easton-Bell Sports Inc.’s baseball and softball unit at the end of this month, chief executive officer Kevin Davis said.
“We have a very clear path of getting there with Easton,” Davis said in a telephone interview from the company’s Exeter, N.H., headquarters. “We know how to do it and we’ve done this before.”
Bauer, which Nike sold to an investor group led by Kohlberg & Co. in 2008 for $200 million, has risen about 100 per cent since it went public in 2011. The company has agreed to or completed seven acquisitions in the past six years worth more than $400 million, including MissionITech Hockey, lacrosse equipment maker Cascade Helmets Holdings and jersey apparel maker Inaria International.
Easton-Bell, based in Van Nuys, Calif. and owned by the Ontario Teachers’ Pension Plan and Fenway Partners, is already the world leader in baseball and softball equipment, including bats, gloves and helmets, with a 28 per cent market share, Davis said.
Rivals in the baseball business include Berkshire Hathaway’s Fruit of the Loom, which makes equipment through its Russell Brands unit, including the Spalding brand. Rawlings Sporting Goods, a unit of Jarden, says it’s the market leader in balls and gloves and has supplied Major League Baseball with official balls since 1977.
Bauer will continue to expand through acquisitions, Davis said.
“We have a very, very full deal pipeline,” he said, declining to identify potential targets or how much money the company expects to deploy. “We are presented with opportunities on a weekly basis.”
The acquisition of Easton Baseball, the company’s largest, is part of Bauer’s strategy of gaining share in a fractured market by buying brands that are already recognized by ath- letes as leaders in their sport and then expanding them through aggressive product development. “This acquisition is a great fit with Bauer’s business model and is consistent with management’s aim of adding strong athletic equipment brands, with good technology in sports that require high-quality and innovative products,” Mark Petrie, an analyst at CIBC World Markets, said in a note to clients. The baseball- and softball-equipment market has 10 to 12 major brands and is ripe for consolidation, Sabahat Khan, an analyst at RBC Capital Markets, said in a note to clients. Davis also sees room to expand in- ternationally, with Russia one of their fastest growing hockey markets and baseball interest rising in Japan and Latin America. Almost 75 per cent of Bauer’s revenue currently comes from North America. The conflict between Russia and Ukraine, which has led to sanctions against Russia from the U.S., Canada and others is unlikely to impact Bauer, Davis said. “Despite the political climate happening there, kids are going to play hockey this upcoming season,” Davis said during the company’s thirdquarter earnings call last week. Bauer reported an adjusted loss of11 cents a share in the third quarter, ahead of analysts’ estimates for a 12- cent loss. Sales climbed 13 per cent to $62.2 million.
Bauer is introducing the latest version of its Re-Akt hockey helmet later this year, Davis said. The helmet, which comes amid rising awareness of concussions in hockey, is designed to protect players from both direct and rotational forces and includes special padding exclusive to Bauer.
Bauer’s debt l evel i s “a bit stretched” following the Easton deal, Trevor Johnson, an analyst with National Bank Financial, said in a phone interview.
Bauer’s debt ratio will be about five times earnings before interest, taxes, depreciation and amortization after the Easton Baseball deal, Davis said. The company announced after the deal it planned to lower this to least four times through an equity issue in the summer, and forecasts a return to normal levels within the next 24 months.
The company plans to finance the Easton deal through a combination of a $200 million revolving credit facility and $450 million in senior secured loans.
“This one’s going to take a little bit of time to make sure we get it right,” Davis said. “We’ve got lots to do but it is not going to slow us down from continuing to seek future acquisitions.”