The apparel and footwear market is teeming with high-profile acquisitions, thanks to legacy brands looking to expand their reach into fast-growing markets.
On August 3, Wolverine World Wide Inc. closed a deal for the acquisition of fitness lifestyle brand Sweaty Betty. Last Thursday, Levi Strauss & Co. announced that it would acquire lifestyle apparel brand Beyond Yoga. Meanwhile, Reebok has yet to announce a buyer as Adidas divests the US brand from its portfolio.
With the M&A market heating up, there are certain key factors that make a deal worthwhile. According to experts and analysts, being situated in a fast-growing category, such as activewear and athleisure, is a green flag to a larger company looking to expand its portfolio.
“It is clear that activewear is the key apparel story in 2021,” said Matt Powell senior sports industry adviser for NPD. He also noted that the top performing active brands are the ones that have focused mostly on female consumers, a major sector of opportunity for brands looking to grow.
In the case of Wolverine, acquiring Sweaty Betty gave the shoe giant a stake in the fast-growing and competitive women’s activewear category, which is led by high-growth brands like Lululemon.
In a recently published Similarweb report, the 25 fastest-growing activewear brands according to web traffic included many smaller and women-focused brands such as Modli and Halara. At the same time, legacy brands Teva, Speedo, and Skechers were also represented.
“The focus on health and wellness is here to stay,” said BMO Capital Markets Analyst Simeon Siegel. “As such, it’s fair to assume brands that resonate strongly with their customers will continue to grow, whether as a standalone and as an acquisition target for a larger company looking to capitalize on the structural shift to active.”
He added that brand acquisitions can either help companies enter the “athletic conversation” or can bolster an existing presence in the market with new products, as was the case with Lululemon’s acquisition of Mirror.
Beyond being situated in the activewear market, brands with strong digital capabilities and existing infrastructure are more likely to be targets for larger brands, experts said.
“Outside of accessing funds and assets, acquisitions could help companies acquire relevant capabilities such as skillsets/knowledge, wider customer segments, proprietary designs or processes versus starting from scratch,” said Liza Amlani principal and founder of Retail Strategy Group, a consulting company for retailers. “In some cases, merging with another brand could increase a brand’s market share and cut out some of the competition.”
Amlani added that smaller brands with inclusive offerings for all sizes can also entice larger brands looking to penetrate these categories.
“What if Lululemon or Athleta acquired Allbirds or even GymShark,” Amlani said. “Penetration into new markets and categories and innovation [is] a win win.”
Overall, experts said smaller brands with a strong history of growth will be more attractive to prospective buyers.
As Siegel explained, companies that buy brands want to “take on burning fire and add fuel to help it surge,” even if that means making larger investments to encourage a longterm growth strategy.