Recreational Products Coverage Report Market Intelligence for Business Owners Q1 2013 Capstone Partners Investment Banking Advisors BOSTON | CHICAGO | LOS ANGELES | PHILADELPHIA | SAN DIEGO | SILICON VALLEY Recreational Products Coverage Report MERGER & ACQUISITION ACTIVITY The recreational products industry lends itself to an active environment for mergers and acquisitions. Many of the industry’s product categories feature a few notable firms. At thesametime,middle‐market companies account for the bulk of industry revenues, and CAPSTONE PARTNERS LLC the industry is highly fragmented and competitive. Start‐ups are also fairly common, as 176 Federal Street demand for product innovations and appealing niche brands develops. 3rd Floor Boston, MA 02110 This dynamic creates a robust M&A environment, as large cap corporate buyers seek middle‐market targets to supplement top‐line growth, and start‐ups eventually grow into www.capstonellc.com mid‐sized companies. Private equity investors have traditionally shown a significant amount of interest in the sector, attracted to the fragmentation and the opportunity to capitalize on the growth of “hot” products and brands. In addition, the industry has become increasingly global in terms of both sourcing and sales, and the U.S. has emerged as the worldwide market leader. As a result, acquisitions commonly cross geographic John Ferrara borders and U.S. targets are in high‐demand. Founder, President (617) 619‐3325 M&A activity in the industry enjoyed a solid year in 2012 with 39 completed transactions [email protected] recorded. This represents a 26% increase over the industry’s 2011 transaction count and provides further evidence of the sector’s continued improvement coming off of the recent recession. Jacob Voorhees Director, Principal (617) 619‐3323 [email protected] Recreational Products M&A Transactions 60 Sophea Chau 54 Vice President 47 (617) 619‐3307 50 43 [email protected] 41 39 40 31 Dan Schultz 29 30 Vice President 24 (617) 619‐3368 [email protected] 20 10 0 2005 2006 2007 2008 2009 2010 2011 2012 Source: Capital IQ Includes M&A transactions in the U.S. and Canada The outlook for the recreational products industry calls for continued gradual improvement in sales and profits. As a result, Capstone expects to see an increase in M&A activity among recreational product companies in 2013. 1 Q1 2013 Recreational Products NOTABLE TRANSACTIONS Most acquisitions of M&A transactions in the recreational products industry result in companies acquiring new products and brands, penetrating new geographic markets and expanding the middle‐market companies sales and distribution channel. Most acquisitions of middle‐market companies involve strategic buyers, involve strategic buyers, including diversified companies that are looking to establish including diversified or expand their holdings in the recreational space. In some cases the transactions companies that are reflect forward‐ or backward‐integration strategies, with buyers interested in looking to establish or controlling the sales channel, including the acquisition of e‐commerce sites as expand their holdings in recreational products gain traction in online sales. We also note a strong “specialty” the recreational theme in the industry, due to increased technicality and more sophisticated buyers of recreational products. Private equity groups have also been very active, as have space…Private equity international buyers. groups have also been very active, as have All segments of the industry are represented in recent transactions – manufacturers, international buyers. distributors, wholesalers and retailers. Notable transactions are outlined on the following pages, followed by a more inclusive summary of 2012 deals on page 6. Northern Tool + Equipment acquires Sportsman's Guide and The Golf Warehouse (December 2012) – Northern Tool acquired both The Sportsman's Guide, a retailer of outdoor gear sold primarily online, and The Golf Warehouse, a web‐only retailer of golf equipment and apparel, for $215 million. The acquisition is notable in that it represents the interest of unrelated businesses in the recreational sector. Northern Tool sells tools online and through its network of 80 stores. It is diversifying into sporting goods because “the market shares the same male audience.” Johnson Outdoors acquires Jetboil (November 2012) – In an example of a large recreational products company acquiring a much smaller firm, Johnson Outdoors, a public company with sales exceeding $400 million, acquired Jetboil, a company expected to reach $10 million in sales in fiscal 2013. Jetboil is a top brand of outdoor cooking systems and a good fit with Johnson Outdoors, known for pioneering innovation and excellence in camping and hiking products. While the companies share consumers and retail customers, they also have unique channel and geographic strengths, as well as product expertise, that can be leveraged across the combined portfolio to expand distribution and fuel growth. In particular, Jetboil is well‐known in the specialty retail channel, the preferred channel for outdoor enthusiasts. Johnson Outdoor paid $16 million for Jetboil, or roughly 11 times the $1.5 million in operating profits it expects the company to earn in fiscal 2013. Iconix Brand Group, Inc. acquires the Umbro brand from Nike (November 2012) – Iconix acquired the Umbro soccer brand and related intellectual property assets from Nike for $225 million in cash. Iconix Brand Group owns a diversified portfolio of fashion and home brands consisting of 29 consumer brands in the fashion, athletic, electronic, home and entertainment industries. With this acquisition, the company's brands will generate approximately $13 billion in retail sales globally, with over $2.5 billion attributable to its portfolio of athletic brands. 2 Q1 2013 Recreational Products NOTABLE ACQUISITIONS (continued) Authentic Brands acquires the Prince brand name (August2012) – Authentic Brands Group (ABG) acquired the Prince name, adding another strong brand to its growing family of properties. ABG said its objective is to maintain Prince Sports' historical reign in the tennis world while expanding into new categories. Prince Sports was sold to ABG during bankruptcy proceedings in a restructuring that relieved the company of a debt burden in excess of $60 million of secured indebtedness. Samsonite buys High Sierra Sport Company (July 2012) – Samsonite International S.A., the world's largest luggage maker, acquired High Sierra for $110 million cash. Samsonite said the acquisition would enlarge its foothold in the $4 billion North American outdoor and casual bag market, and it will use its global distribution network to expand High Sierra's brand in Asia, Europe and Latin America. Authentic Brands acquires Sportcraft Ltd. Intellectual Property (June 2012) – Authentic Brands Group also acquired the intellectual property of Sportcraft Ltd. ABG‐Sportcraft now holds ownership of all trademarks, copyrights and patents of the Sportcraft and Classic Sport brands, both leading brands in recreational sports. Sportcraft's product offerings include billiards, darts, foosball, table tennis, air hockey, badminton, ladderball and more. ABG is a brand development and licensing company backed by the private equity firm Leonard Green & Partners. Its mandate is to acquire, manage and build long‐term value in prominent consumer brands and to further enhance brand equity through partnering with best‐in‐class brand licensees. TaylorMade‐adidas Golf acquires Adams Golf (June 2012) – The TaylorMade‐adidas Golf business segment acquired Adams Golf for approximately $88.7 million. In 2011, Adams Golf’s sales were approximately $97 million. The acquisition added a strong golf brand to an already powerful portfolio that includes TaylorMade, adidas Golf and Ashworth. The majority of Adams Golf's sales have been generated in the United States. TaylorMade‐adidas Golf plans to use its worldwide distribution channels to develop Adams Golf into a global brand. The acquisition brings together two highly complementary sets of brands, combining Adams' focus on game‐ improvement, senior and women golfers with TaylorMade‐adidas Golf’s focus on younger and low‐to‐midhandicapgolfers. Tackle box maker Plano Molding acquires Frabill Fishing Gear Brand (June 2012) – The deal unites two iconic and complimentary Midwest fishing tackle brands that have been serving anglers and outdoor enthusiasts for more than 70 years and whose products already sell side‐by‐side in many stores. The transaction brings together the worldwide leader in fishing tackle storage systems and the North American leader in live bait storage, landing nets and portable ice fishing shelters and related accessories. Riddell acquires Gunther's Athletic Service (January 2012) – In another example of a large sporting goods company buying a smaller, niche business, Riddell acquired Gunther's Athletic Service, a West Coast helmet and protective reconditioning company with about 65 employees. Gunther’s facility will remain in operation and its previous owners retained key sales and management roles in the company. 3 Q1 2013 Recreational Products NOTABLE PRIVATE EQUITY TRANSACTIONS Private equity groups are actively seeking acquisitions in the recreational products industry, as exemplified in the following transactions. Billabong to be purchased by Sycamore Partners (Pending), a private equity firm specializing in buyouts of small to middle market companies in the consumer, retail