Confirming our previous reports in Shoe Intelligence and Sporting Goods Intelligence, Brown Shoe Company has announced its acquisition of American Sporting Goods Corporation for $145 million in cash, plus about $6 million in net debt. Brown Shoe hopes to expand in the fitness and comfort markets with the purchase of this company, which is the parent company of Avia, Ryka and AND1, among other athletic brands. It said that its customer base is demanding more and more options to help lead a healthy lifestyle.
ASG had sales of $232 million in its last fiscal year, with Ebitda estimated at $29.6 million. Brown Shoe says the takeover should improve its net profit by 10 cents to12 cents a share in 2011, not counting various adjustments and costs related to the acquisition. In the longer term, it expects the new addition to add 2 percentage points to its margins. It is borrowing the funds to make the purchase through its revolving credit agreement. Formerly $150 million, it has been increased to $530 million. Under terms of this agreement, Brown can increase the credit line by another $150 million.
ASG's co-founder and long-time chief executive, Jerry Turner, who has been looking for a new owner since 2005, will stick around for a year to help with the transition, pending the appointment of a new general manager. Mark Lardie, Brown Shoe's division president – wholesale, will be in charge of the endeavor. Former ASG employees who stay on will report to him.
The deal will push Brown Shoe's wholesale business over the $1 billion mark. Its big Famous Footwear retail chain is a customer of ASG's mostly mid-market brands, which represent only about 1 percent of its sales. It remains to be seen whether these brands become more in-house private label while maintaining a wholesale presence in other key family shoe and department store channels, such as Shoe Carnival and Kohl's, that are the strength of ASG's distribution network in the U.S. Brown Shoe said it does not expect competitors of Famous Footwear to revise their relations based on its new ownership.
The acquisition package includes three factories in China that provide about 35 percent of ASG's products, and Brown Shoe said it would keep them for now, as they help the company to offer value and high gross margins on its brands. The factories will also give Brown Shoe insight into input costs, benefitting its overall purchasing policies in the difficult times for sourcing in China.
Avia, a former property of Reebok, is described as the cornerstone of ASG, representing about half of its sales. Ryka and AND 1 combine for another 30 percent or so. Brown Shoe noted that toning shoes represented about 20 percent of ASG's sales in 2010, and it expects that category and the Avia brand to suffer a drop in sales this year as entries into lightweight running may not offset expected declines in toning. However, it sees growth for both Ryka and AND 1 this year and believes they will have the most upside. Among other avenues, it plans to launch them into e-commerce on Brown Shoe's platform and believes it will be able to develop distribution synergies with group brands such as Naturalizer and Dr. Scholl's.
It also intends to expand the licensing business for the newly acquired brands and wants to see a more international distribution of the ASG brands. In Europe, Avia's biggest market is Spain.