The Kathmandu Holdings Limited (ASX: KMD) share price is on the rise in early trade after the company announced the successful acquisition of Rip Curl.
What did Kathmandu announce?
Clothing and outdoor equipment retailer Kathmandu announced this morning that the company has successfully completed a $350 million acquisition of Rip Curl. Under the new Kathmandu Group, each brand will retain operation ownership of its respective business.
Rip Curl designs, manufactures and sells surfing equipment and apparel and has a global presence across Australia, New Zealand, the US and Asia. The acquisition of the iconic Australian surf-wear brand will give Kathmandu Group a combined total of 341 owned retail stores, 254 licensed stores and more than 7,300 wholesale relationships.
The acquisition of 100% of the global surfing brand was funded by 45% equity and 55% debt. The purchase price implies a 7.3x enterprise value on Rip Curl's pro-forma 2019 earnings before interest, tax, depreciation and amortisation (EBITDA).
In addition, Kathmandu also announced changes in the scope of senior management to accommodate the acquisition of Rip Curl.
How will the acquisition help Kathmandu?
Kathmandu is a dual-listed company and one of the largest retailers of outdoor equipment and clothing in Australia and New Zealand. Despite the retail sector facing multiple headwinds, the Kathmandu share price is trading near 52-week- highs.
Kathmandu performed strongly in FY19, with online sales growing 9.2% in 12 months and overall sales increasing 9.7% from the year prior to NZ$545.6 million. In addition, EBIT for FY19 was 12.7% higher from FY18 at NZ$84.3 million and net profit after tax grew 13.6% to NZ$57.6 million.
According to management, the acquisition of Rip Curl is estimated to reduce seasonality in earnings and contribute at least 10% to earnings per share for FY20 on a pro-forma basis. According to the company's chairman Mr David Kirk, "the acquisition of Rip Curl is an opportunity for Kathmandu to considerably diversify its geographic footprint, channels to market and seasonality profile."
The combination of the two brands under Kathmandu Group is forecasted to create a NZ$1 billion outdoor and action sports company. The acquisition was supported by more than 99% of Kathmandu shareholders. Kathmandu has had recent success with acquisitions after buying hiking-boot brand Oboz last year for US$75 million.
The Kathmandu share price closed yesterdays trading session at $2.89 and has already lifted 0.69% in early trade to $2.91 per share.
