Blackstone, the private equity firm that purchased Jack Wolfskin in a leveraged buy-out of an estimated €650 million in 2011, has reportedly agreed in principle to hand over control of the German outdoor brand to a group of lenders in a debt for equity swap.
As previously reported, Blackstone has been holding talks with creditors for several months. Reuters reports that the U.S. firm attempted to sell Jack Wolfskin in January but that it had not received any serious bids. Under the terms of a debt restructuring plan, lenders would write off €80 million and reduce Jack Wolfskin's debt to €210 million, while injecting €25 million in return for ownership.
The report last month added that negotiations were ongoing with a group of second lien lenders, and an unnamed source quoted by Reuters estimated that it would take another couple of months to finalize the agreement. Jack Wolfskin's senior debt was sold to funds and the plan for a debt-for-equity swap was put forward in February by a lender coordinating committee including H.I.G. Capital, CQS and Sankaty.
Blackstone declined to comment.
The negotiations around Jack Wolfskin's debt and ownership come at a time when structural changes and investments made in recent years appear to have yielded some improvements. As previously reported, Jack Wolfskin reported an operating profit on sales of €351 million for the full year until the end of September. This was an increase of about 12 percent, after a decline of more than €30 million to €314 million in the previous financial year.
As part of the changes, Jack Wolfskin has purchased dozens of former franchises in Germany in the last two years. While the company had just 23 own stores in 2014, the number has jumped to 104 across Europe – 84 in Germany, seven in Belgium, two in France, six in the U.K., four in Italy and one in the Netherlands. This rise was driven by the acquisition of 55 German franchises in 2015 and another eight last year. Jack Wolfskin has 100 franchises left in Germany and 16 in Austria.
Melody Harris-Jensbach, Jack Wolfskin's chief executive, said at Ispo Munich this year that the group's transformation in the German-speaking countries had been almost completed. The group has taken back its German online business from Globetrotter in 2015. The focus has shifted to improvements in the productivity of the stores and broader investments to make sure that they add to the brand's value. It has been helped by improved sell-through in the winter, owing to favorable weather conditions and adjustments in the product range. The chief executive says that the company has turned from a predominantly German wholesale company to a more international and multi-channel group.
The German brand's business in the Russian market appears to be picking up as well. Jack Wolfskin opened its own office in Russia in 2013 and had to deal with worsening economic and political conditions. However, the operation remained afloat and even expanded to 13 stores, along with a sizeable wholesale business.
Jack Wolfskin's sales increase last year was pushed up by the termination of the German brand's licensing agreement with Tristate Holdings for the Chinese market but Harris-Jensbach declined to provide an update on the comparable numbers (the impact of this termination being split between two years).
Jack Wolfskin has fully taken over the management of its brand and distribution through about 700 stores in China. It has taken over its own online distribution and is envisaging the opening of own operated stores, probably starting in Shanghai in 2018. While the Chinese outdoor market's expansion has weakened, Harris-Jensbach says that Jack Wolfskin's business was flat last year. It has built up strong distribution in the northern and eastern parts of the country, but will be striving to expand in southern China.
South Korea is another market where Jack Wolfskin's business is under assessment. As previously reported, the brand's partnership with LS Networks is coming to an end. It will formally run until the middle of this year, and Jack Wolfskin is studying other partnerships for the South Korean market.
The reported uptick in demand comes after Jack Wolfskin hired several managers focusing on product and branding – in charge of product development, apparel, marketing, retail and communication. The brand has shifted its positioning, to become what is described as a technical brand with an urban attitude. The price points were stretched at both ends of the spectrum, with extra technology at the upper end. The change in branding and communication has started to attract younger buyers.
Jack Wolfskin has been steadily investing in sustainability as well. The brand is ahead of its plans to remove PFCs from its ranges in 2020, as about 84 percent of the products for the upcoming spring range are already without PFCs. The company has started a new project for the next spring range, with products that are fully recyclable.