Why 2016 Could Be A Red-Hot Year For Mergers & Acquisitions

Is 2016 the year for mega dealmaking?

A choppy stock market, record-low oil prices, rising debt and free cash flow in the hands of key industry players make for quite the backdrop. That’s why analysts and M&A experts are optimistic that 2016 could be a robust year for deals. On Jan. 7, a buy that saw Hudson’s Bay Co. snap up luxury discount e-tailer Gilt Groupe Holdings for $250 million set the wheels in motion.

Adding to the momentum, Steve Madden Ltd. and Caleres Inc. are high on Wall Street’s radar. In early 2015, Caleres announced a footwear-licensing deal with Diane von Furstenberg and postured that it is open to making another move should the right deal present itself. Steve Madden became one to watch after it bought boot brand Blondo, fashion-footwear label Dolce Vita and Brian Atwood within a year.

“Steve Madden and Caleres are always on the hunt for brands that could benefit from a larger platform,” said CL King & Associates analyst Steve Marotta. “I’m always interested when a consolidator is consolidating with larger companies.”

After Steve Madden posted better earnings and showed marked agility during a difficult year for retail, B. Riley & Co. LLC analyst Jeff Van Sinderen said he will be watching the fashion-footwear company closely.

“Steve Madden is pretty disciplined in making acquisitions, and with multiples coming down, they could find something else to acquire this year,” Van Sinderen said.

Marotta noted that Wolverine World Wide Inc. is another company that could do some bidding this year.

However, William Susman, managing director at independent advisory firm Threadstone Partners, pointed out that Wolverine may want to buckle down on its organic growth first. The firm struggled with lackluster sales and profits over the past year — Sperry sales remained flat for several consecutive quarters — and Wolverine announced plans to “refocus” its Stride Rite brand by reallocating resources to e-commerce.

“Wolverine has an enormous portfolio that they need to fully digest,” Susman said. “I don’t anticipate any divestitures, but they could elect to rationalize a few brands this year.”

Analysts agree that a big question mark for 2016 centers on plans at Vince Camuto after the founder’s death last year and the subsequent sale of the Jessica Simpson master license to Sequential Brands Group.

“After Vince’s death, more and more creative burden has fallen on the management team,” Susman said. “But since his passing, the prioritization and focus — the Vince Camuto brand — has remained consistent. The sale of the Jessica Simpson master license is consistent with that. It would not surprise me if Tory Burch brought her footwear in-house in the coming year so [Camuto Group] can focus on its [namesake] brand.”

While Camuto’s willingness to sell the Jessica Simpson license last year was surprising, seeing the brand switch hands to up-and-coming brand-management firm Sequential Brands Group was another shocker, noted Canaccord Genuity Inc. analyst Camilo Lyon.

“I was surprised that Sequential was able to get the Jessica Simpson brand,” Lyon said. “I would’ve thought there was more of an opportunity for Camuto Group to sell itself as opposed to selling its biggest license. I expected a company like Steve Madden to purchase Camuto Group last year — I still think it would be amazing if Madden bought them.”

Camuto Group CEO Alex Del Cielo said that while he couldn’t comment on the specifics, the company currently has no deals under consideration but is “constantly exploring opportunities.”

Regarding Tory Burch, Del Cielo said Camuto Group doesn’t have “insight into [the brand’s] internal strategies.” But for now, “we continue to partner with them on their footwear business.”

“This has been a great partnership for Camuto Group and we look forward to continuing it,” Del Cielo added.

Jessica Simpson’s acquirer, which also nabbed Martha Stewart Living Omnimedia Inc. and Joe’s brand last year, has received positive attention for its high-profile dealmaking.

Similarly, analysts have been upbeat about Authentic Brands Group LLC (ABG) — Taryn Rose, Shaq and the newly acquired Tretorn are among the names on its roster — with Lyon suggesting the firm could go public soon.

Still, the level of investor confidence in the brand-management business model has taken a hit lately after the public downfall of Iconix Brand Group Inc. The firm — which still has a robust stable of brands and licenses, including Candies, Peanuts, Pony and Material Girl — saw its stock tumble on news of a probe by the Securities & Exchange Commission, as well as the back-to-back exits of its founder and CEO, CFO and COO.

“The overarching view of the brand-management category has been tainted by what’s been happening at Iconix — despite the good business, operations and free-cash-flow generation that Sequential is having,” Lyon said. “When ABG goes public, that will be good for the industry and good for Sequential — to get another good brand-management firm in the public’s eyes.”

Similarly, Susman noted that “a few bad apples don’t spoil the whole bunch. Iconix clearly had issues and needs to be restructured, but it has core brands,” Susman added. “Sequential has made some wonderful acquisitions and they now need to transition those brands to a healthier place. Xcel [Brands] and ABG are also performing well.”

Meanwhile, a turbulent stock market may make for a buyer’s playground this year. “Lots of interesting things could happen in the M&A market in 2016, but it depends on the kinds of synergies [that could be made] and valuation,” said Dana Telsey, CEO and chief research officer at Telsey Advisory Group. “With stocks under pressure, valuations could be [more] appealing in 2016.”

Market watchers believe VF Corp., which put its dealmaking on hold over the last few years to focus on organic growth and e-commerce initiatives, could start bidding again soon.

“This is the year of the deal for VF Corp., and Puma is probably at the top of the list of candidates,” Lyon said. “It would expose them to athletic, but a street-culture part of it, so there’s a benefit of being in a space that’s hot without going head to head with Nike.”

Whether VF Corp. makes a move soon or not, Gilbert Harrison, founder and chairman of New York-based investment-banking firm Financo Inc., said he continues to view the firm as a leading company.

“VF is phenomenally well-positioned to meet its objectives,” Harrison said. “Management under [CEO] Eric Wiseman is unbelievably good, and what he has done in building this company is significant.”

Telsey said she also expects VF Corp. to make a move, along with GIII Apparel Group Ltd. and Steve Madden.

All in all, Lyon said, he expects to see ramped-up global M&A this year, driven by the weaker euro and stronger dollar — making European assets more attractive to American companies.

Van Sinderen said he’ll keep his eye on the athletic space.

“There could be more deals in the sneaker space since that is one of the strongest-performing areas in footwear and there are players that would like to add a presence in that niche,” he said.

Although Adidas CEO Herbert Hainer, who will step down on Oct. 1, postured throughout 2015 that a TaylorMade Golf divestiture could be imminent, Van Sinderen said he would not be surprised to see the Adidas brand itself snapped up this year.

Susman said he expects activity across both large and small brands. “[Nine West Holdings Inc.’s] footwear assets — particularly Nine West and Easy Spirit — could see activity [soon],” Susman said. “With Rebecca Minkoff continuing to grow at tremendous rates, you could see an exciting opportunity there just because they are doing so well.”

[Editor’s Note: This story first appeared in print 01/25/16]

TOMS Sponsored By TOMS

Building Business to Improve Lives

TOMS discusses its approach to mental health awareness and female empowerment through impact initiatives in the footwear segment.
Learn More

Access exclusive content