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M&A Watch: What’s VF Corp.’s Next Move?

VF Corp. is at the top of Wall Street’s M&A radar.

When the Greensboro, N.C.-based firm announced on March 25 that it was exploring “strategic alternatives” for its Licensed Sports Group business, analysts interpreted the news as an impending divestiture of the division, which could make room for a highly anticipated acquisition.

We have been of the opinion that 2016 will be the year of the deal for VF Corp. and recent declarations by the company to actively manage its portfolio (via both additions and deletions) support our assertion,” Canaccord Genuity Inc. analyst Camilo Lyon wrote Tuesday.

Similarly, UBS Investment Bank analyst Michael Binetti said he was “encouraged to hear VF talking aggressively about M&A and disposals” in recent months.

VF Corp. indicated that its biggest hurdle to closing a deal has been finding a willing seller — though the company mentioned an uptick in inbound calls since valuations in the space came under pressure over the past six months — and even more inbound calls since mentioning M&A in its February earnings report,” Binetti wrote Monday.

But what brands and firms is the company watching?

For his part, Lyon has narrowed the list down to familiar names such as Puma and Deckers Brands but also added new prospects, Canada Goose and New Balance.

We put Puma at the top of our list of potential targets. Not only would Puma give VF direct exposure to athletic via an authentic brand with a cultural bent to it, it would also bring international exposure,” Lyon said. “The long-term opportunity would be to take Puma’s paltry 3 percent EBIT margins up to the mid-teens. We estimate acquiring Puma could initially yield modest accretion in year one (5 cents) due to the expensive valuation the stock carries; however, in the out years we would expect the accretion to improve significantly as VF transitions the operations of the brand onto its platform.

On Deckers, Lyon said — much like Macquarie Capital analyst Laurent Vasilescu told Footwear News last year — the company has brands that could be a good match for the firm’s portfolio.

While Deckers would further increase VF’s fall seasonal exposure, we believe VF could leverage its global supply chain and international expertise to better manage the growth of the Ugg brand,” Lyon said. “In addition, we believe VF could create a full lifestyle offering by combining Ugg with Smartwool, especially since it has been expanding Smartwool’s product offering to include apparel.”

Meanwhile, Binetti said current weather trends and long-term forecasts bode well for VF Corp’s current portfolio.

Weather Trends International’s winter ’16 forecast is very favorable for VF (much colder than average due to a strong La Niña, lapping record warm 2015 winter), which should boost sales of VF’s high-ticket cold weather categories — The North Face and Timberland,” Binetti wrote. “We believe VF has worked with retail partners to clear the channel, and has solid orders for new product for 2H16.”

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