You will be redirected back to your article in seconds

Firms Take World View for M&A

NEW YORK — Mergers-and-acquisitions activity has been tepid both in the footwear arena and other sectors so far in 2013, but experts predict this could be the calm before the storm.

According to data from Thomson Reuters, only 8,115 deals were announced worldwide — inside and outside the industry — in the first quarter of this year, the lowest number since 2003. And while the combined $542.8 billion value outpaced last year’s first quarter by about 10 percent, it is still 26 percent below the same period in 2011.

In footwear, only three firms have made plays: Authentic Brands Group snapped up Taryn Rose in January as part of a three-brand package for an undisclosed sum. The other two deals involved international players. South Korea’s E-Land World Ltd. acquired California firm K-Swiss Inc. in January for $4.75 a share, or about $170 million, while R.G. Barry Corp. earlier this month bagged its China-based sourcing agent and Hong Kong handbag brand Mosey for $1.2 million.

In fact, market watchers told Footwear News the industry could see a lot more cross-border activity, specifically to and from Asia.

E-Land is likely in the market for another footwear asset, said observers. Another Korean firm, clothing manufacturer Sae-A Trading Co., is believed to be actively looking here. And Japan’s ABC-Mart Inc., which acquired LaCrosse Footwear Inc. last year for $137 million, remains on the prowl to add to its footwear portfolio.

The change in the acquisition landscape can be attributed to the fact that foreign companies no longer just want a foot in the stateside market — they are now looking to develop the brands in their home countries.

“It used to be that foreign buyers … couldn’t easily get into [the U.S. market]. Now they’re as interested, if not more interested, in buying brands they can take home,” observed Andy Postal, managing partner of strategic advisory firm MMG, which has been in talks with a number of Korean companies that are considering acquisitions of U.S. assets.

As for stateside firms seeking returns from overseas, Postal added, “You don’t have to be a genius to see the difference between Europe and the U.S., with zero and 2 percent growth rates, while some Asian markets have high single-digit growth. Many market segments in the U.S. are zero-sum games — it’s a highly consolidated marketplace in a low-growth environment.”

That may explain why U.S. firms are slower out of the gate this year compared with their global counterparts. As well, they are re-evaluating both their opportunities and finances after some intense activity late last year.

“A lot of deals had to conclude by year-end before the change in tax laws. It just takes time to get deals up and going now in the new year,” said Allan Ellinger, senior managing partner at MMG.

Gilbert Harrison, founder and chairman of advisory firm Financo Inc., noted, “The market is just recovering at this point from the activity they had last year. There are a number of things in process and we are very busy, but on the whole, things are still going slower than expected.”

Still, as the equity market continues to set new highs, the number of mergers — which historically tracks close with stock prices — should rise as well, bankers said. Together with an improving economy and record low interest rates, the factors are lining up to create a perfect environment for deal-making. “The only problem is that firms continue to be selective,” said Joe Pellegrini, managing director of investment banking at Baird. “They’re going to look for acquisitions that really fit well within their existing organization. [Otherwise], the environment now is as robust as it was last year.”

There are deal-hungry firms — both public and private — worth watching this year. Private equity firms also continue to show interest in investing in the fashion industry because of its attractive risk-reward profile. Moreover, “footwear is one of those high-growth sectors that is fragmented, so there are more selective opportunities,” said Jay Agarwal, retail strategist in Kurt Salmon’s private equity practice.

William Susman, founder and managing director of advisory firm Threadstone Partners, noted, “Several footwear companies are performing extremely well. Steven Madden Ltd. and Brown Shoe Co. are seeking growth through acquisition, and you also have a number of transactions that failed to finish last year.” Susman, however, declined to elaborate on the specific deals that did not close.

Agarwal believes Madden is looking for catalysts for its retail expansion plans, having already purchased its Canadian licensee and struck deals with retailers House of Fraser and Topshop in the U.K.

Insiders also said The Jones Group Inc. will make more plays as the firm evolves its portfolio away from aspects in its apparel business that are struggling. Postal said, “The challenge for these guys is what’s going to move the needle for them. They’re looking for lifestyle brands more than just footwear brands — brands that can translate into a broader selection of product.”

VF Corp. has repeatedly stated it wants to acquire more labels, although earlier this month it was outbid by Sycamore Partners for Australian surf brand Billabong International Ltd.

News also may come from large private firms such as Camuto Group, although sources were divided on what direction the company could take. (Some suggest Camuto could be valued as high as $2 billion.)

One observer suggested the firm could go public. When contacted, however, a Camuto Group spokesperson dismissed the speculation as “a rumor.”

But Pellegrini, pointing out that the markets are up about 10 percent this year to date, said, “Good assets will be going public. You can look out for some announcements in the next seven months.”

Industry players also expect a lot of interest for Reed Krakoff, after Coach Inc. announced last week it would explore strategic alternatives, involving selling the brand to a group.

More From Our Brands

Access exclusive content