JD Sports Fashion, a British retailer and distributor of sportswear and fashionwear, has acquired the American company Shoe Palace from the Mersho family in a cash and stock deal worth over $680 million.
JD Sports, through its wholly-owned holding company in the U.S., Genesis, acquired 100 percent of both the shares in the Shoe Palace Corporation and the family’s interests in Nice Kicks.
The U.K. retailer is paying $325 million in cash for the acquisition, of which $100 million has been deferred and will be paid on various dates over the next 12 months. The outlay is being funded from its cash resources and existing bank facilities. In addition, the four Mersho brothers who own the business have been issued with equity in Genesis and will own 20 percent of the enlarged group in the U.S. The initial fair value of the equity consideration is approximately $356 million. The Mersho brothers will have the right, through put and call options, to sell down their stake from Feb. 1, 2025.
Based in San Jose, California, Shoe Palace was established in 1993 by the Mersho family and currently has 167 stores, the vast majority of which trade under the Shoe Palace banner. More than half of the stores are located in California, but the company also has a retail presence in Texas, Nevada, Arizona, Florida, Colorado, New Mexico and Hawaii as well as an e-commerce platform.
In 2019, Shoe Palace generated revenues of $435 million and a profit before tax of $52 million.
JD Sports said that Shoe Palace complements its Finish Line and JD banners in the U.S. In particular, the acquisition will significantly increase its presence on the West Coast and strengthen its connection with the Hispanic and Latino consumers, who represent a significant proportion of Shoe Palace’s customer base.
The Mersho brothers will continue to manage the Shoe Palace business although the intention is that, from next year, JD Sports’ and Shoe Palace’s teams will begin to share ideas and best practices.
Analysts at Shore Capital said the deal seems like ”another sensible bolt-on acquisition that will be earnings accretive from year one”.
“This acquisition looks right up (JD Sports’) street in core footwear and is complementary to its existing U.S. business in terms of geography and extends its reach in terms of customers,” they added, noting that the acquisition will no doubt provide synergy opportunities in buying and central overheads.