Experts Expect M&A Pace to Quicken

NEW YORK — While consumers are still pinching pennies and looking for deals, footwear firms appear to be in the mood to spend.

Mergers and acquisitions are on the rebound, as many footwear companies have built up liquidity on their balance sheets, said industry analysts.

Smaller firms also are finding plenty of investors looking to enter the market.

“For the most part, the publicly traded names are in a good financial position,” said Morningstar analyst R.J. Hottovy. “Assuming we don’t see a major double-dip in the economy, we could see something happen in as soon as the next couple of months.”

Analysts told Footwear News the industry is awash with cash after implementing heavy cost-cutting measures last year. Private equity firms are sitting on a lot of stagnant capital, while strategic buyers are seeking ways to plow back their excess funds.

“Companies that have publicly said they’re on the lookout for acquisitions are seeking to do deals that move the needle,” said Scott Krasik, an analyst at BB&T Capital Markets. “And what qualifies as moving the needle is at least $100 million.”

Analysts singled out cash-rich companies such as Nike Inc., Deckers Outdoor Corp. and Wolverine World Wide Inc. as being on the prowl for deals. Nike had $3 billion in cash and cash equivalents as of May 31, 2010, which makes up nearly a third of its total assets. Wolverine had $160 million in cash and cash equivalents at its last fiscal year-end, and almost no long-term debt. Deckers has $177 million in cash, enough to pay off its total current liabilities nearly twice over.

Already this year, the value of global acquisitions of apparel manufacturers, as well as apparel and shoe, jewelry and department stores, jumped 133 percent to $11.28 billion, according to Dealogic. However, the total value of completed and announced global retail M&A deals is still well below the $29.09 billion seen at this same point in 2007, and no one expects to see that level of activity for some time.

But analysts did point to recent deals, such as Jones Apparel Group Inc.’s $180 million purchase of Stuart Weitzman Holdings LLC, as bellwethers of future activity.

“What you’ll see is that companies that already have a stake in something will try to up it, for example, Brown Shoe Co. and Sam Edelman,” said Hottovy.

St. Louis-based Brown Shoe last month acquired the remaining 50 percent interest in Edelman Shoe Inc. for a mix of cash and stock totaling $39.6 million. And it is understood that Jones plans to buy the remaining 45 percent stake in Stuart Weitzman from the designer at the end of 2012.

For their part, footwear firms are eager for a cash infusion to help them leap forward with expansion plans.

“There are a lot of small, good companies that want to grow, but don’t have the money to fund it, so they’ll want to get a partner to help them take it to the next level,” said analyst Sam Poser of Sterne Agee. “And they’ll be looking for investors rather than to sell off the company, to retain control over the running of the business.”

Struggling firms can forget about scoring a white knight, though, said analysts. Strong brands with good valuations are widely available, and investors would rather focus on building those than acquire distressed assets that would take time to turn around.

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