Investcorp Group, the big investment company from Bahrain, has reached an agreement with the Black Diamond group to take over Poc, the Swedish brand of snow sports and cycling gear, at a price of $65.0 million, subject to customary price adjustments. This is equivalent to nearly 1.9 times the turnover achieved by Poc in 2014, which amounted to $34.8 million.
Black Diamond, the U.S. outdoor company, agreed to buy Poc Sweden in July 2012 for $43.5 million in shares and cash, plus $12.5 million in performance-based incentives for Poc managers that was supposed to be paid over six and a half years. It reported sales of nearly 148.4 million Swedish kronor for the fiscal year until the end of April 2012, equivalent to about $20.9 million at the time.
The group then comprised the Black Diamond brand itself, along with Gregory Mountain Products and Pieps. Gregory, which specializes in technical backpacks, was divested in June 2014. It was sold to Samsonite International for $85.0 million in cash, amounting to more than 2.4 times the turnover of $34.9 million reported for Gregory in 2013.
Poc was established in Sweden in 2005, focusing on its highly technical helmets and other protective gear for mountain sports enthusiasts and cyclists. It subsequently added sports eyewear and sunglasses. Under Black Diamond's ownership the brand diversified further into other performance products, such as technical garments for road cycling. Stefan Ytterborn, Poc's founder and chief executive, said the acquisition would enable it to continue its rapid expansion.
Black Diamond said the divestment of Poc has put an end to a strategic review started in March, when it hired Rothschild Inc. and Robert W. Baird to explore strategic alternatives for each of its brands. It said that it will now focus on improving the profitability of its two remaining brands, Black Diamond and Pieps. It has taken significant measures to repatriate some of its manufacturing operations from Asia to Salt Lake City to shorten the supply chain and support focus on innovation, as reported in June.
Black Diamond said that net proceeds from the sale should reach about $60.0 million after purchase price adjustments, taxes and other costs. After the transaction, it should have about $100.0 million in cash, $22.6 million in debt and $167.0 million in net operating loss carry-forwards. The company will reinvest the proceeds from Poc's sale in its remaining brands, possibly making new diversification moves.
Black Diamond's share price shrank by more than 40 percent from the middle of July until the start of October amid uncertainties about the company's strategic plans and the price slid further when the sale of Poc was announced last Thursday – perhaps because it appears to eliminate the prospects of an imminent sale of the entire group. Black Diamond will provide a strategic and financial update in November, when it will discuss its results for the third quarter.
Last November, Investcorp agreed to buy a majority stake in Dainese, the Italian brand of protective equipment and clothing for motorcycling, cycling and skiing, for €160 million. The company's founder, Lino Dainese, remains a minority shareholder. There are synergies between Dainese and Poc that will be explored, Investcorp said. The listed Bahrain-based company got involved in the outdoor and sports market in 1997 when it acquired 70 percent in Helly Hansen, but the Norwegian company was sold again in 2006 to Altor Equity Partners, which has since divested it.
Poc will disentangle its operations from the Black Diamond group in the coming months. The U.S. team should remain unchanged, since Poc was already run independently as part of the Black Diamond group. The Swedish group has started searching for another location to establish its U.S. office in or around Salt Lake City, and is studying options to take charge of North American logistics again in a few months' time, potentially through a third party. When the company was sold to Black Diamond, it had also been envisaged to shift European logistics from its Swedish partners in Borås to Black Diamond's European platform, but that was never implemented.
Ytterborn said the acquisition by Black Diamond had enabled the company to mature in many ways, such as the discipline that comes with being part of a listed company and learning to manage rapid development while improving profitability. Poc turned a profit for the first time in the fiscal year until April 2012 and its profit structure has improved under Black Diamond's ownership.
Poc's sales have been growing at an average annual rate in the range of 30 percent for the recent years, and the company intends to uphold or surpass that performance. The acquisition by Investcorp should support Poc's expansion, through financing and other resources.
Poc's five-year plan includes continued investment in the cycling market. Cycling currently makes up about 30 percent of Poc's sales, compared with 70 percent for snow sports. The company aims for the two sectors to contribute roughly equal shares in five years' time, while still growing its snow sports category by at least 15 percent per year.
The sale of Poc appears to indicate that the offers received by the Black Diamond group for the Black Diamond and Pieps brands were not temping enough, especially in view of the high multiples recently paid by Vista Outdoor for Camelbak. The price of $412.5 million to which it agreed represented 2.5 times Camelbak's projected 2015 sales of $160 million. As we have previously indicated, there will be interesting synergies with Vista' other components.