The article for those who don't get the WSJThe Wall Street Journal
(Copyright (c) 2004, Dow Jones & Company, Inc.)
Wednesday, June 16, 2004
Media & Marketing
K2 to Buy Three Ski-Gear Makers As It Continues Acquisition Spree
Sports-equipment maker K2 Inc. has agreed to pay more than $200 million to buy three ski-equipment makers, continuing an acquisition spree that has included more than a dozen sporting-goods companies since Richard Heckmann became chief executive in 2002. The deal, expected to be announced today, is part of K2's drive to gain leverage against the increasingly consolidated sporting-goods retail market by expanding its brand portfolio. While K2 started out making winter-sports gear, it is now a year-round company whose 35 brands include baseball-equipment company Rawlings Sporting Goods Co., Shakespeare fishing rods and paintball-equipment maker Worr Game Products.
Now, K2, based in Carlsbad, Calif., will add three closely held ski-related companies. It has agreements to acquire ski maker Volkl Sports Holding AG and bindings manufacturer Marker Group from a private investment group for a total of $124 million plus the assumption of an undisclosed amount of debt. In addition, it will buy apparel company Marmot Mountain Ltd. for $84 million plus debt.
K2 will pay for the acquisitions, which should be completed by the end of the month, through a combination of stock and cash. The company also will raise its earnings projection for this year, saying it now expects sales to total $1.13 billion, or 86 cents a share, compared with its previous forecast of $960 million, or 80 cents a share.
Packed with thousands of small specialty manufacturers and a few big players, the sporting-goods industry has been "begging for a roll-up," Mr. Heckmann said. He said K2's goal is to dominate the sporting-goods equipment industry, much as Nike Inc., Germany's Adidas-Salomon AG and Reebok International Ltd. dominate the athletic footwear and apparel business.
Despite a lack of experience in the sport-equipment business, Mr. Heckmann impressed analysts with his track record at U.S. Filter Corp., where he oversaw the acquisition of 260 companies in the 1990s, eventually selling the water-filtration concern to Vivendi SA in 1999 for $6.2 billion.
"You don't drive growth from [cutting] cost, you do it from revenue synergies," Mr. Heckmann said. For this deal, that means using Volkl's distribution channels in Europe to push a wide variety of K2 products and Marmot apparel into stores.
The sporting-goods industry has been on a consolidation kick in recent years, with big retailers like Sports Authority Inc. merging with Gart Sports Co. in August 2003 and manufacturers such as Atlanta-based Russell Corp. and Reebok recently purchasing equipment companies.
K2's recent acquisitions helped sales jump 23% to $718 million in 2003, compared with $582 million the year earlier. The company posted net income of $11 million, or 44 cents a share, in 2003, compared with $12 million, or 67 cents a share, a year earlier.
K2 shares were up 17 cents, or 1.1%, at $15.20 as of 4 p.m. in New York Stock Exchange composite trading yesterday.
Some of K2's acquisitions since October 2002
-- Rawlings Sporting Goods (baseballequipment company) -- Worth Inc. (softball-equipment company) -- Brass Eagle (paintball equipment) -- Fotoball USA (entertainment and sports marketer) -- Worr Game Products (paintball equipment)