Kathmandu, the New Zealand outdoor brand and retailer, has agreed to take over Oboz Footwear, the U.S. outdoor footwear brand, for $60.0 million in cash and an earn-out of up to $15 million, as a means to expand its footwear and international sales.

Established in Bozeman, Montana in 2007, Oboz is generating annual sales of about $30 million, after strong growth in recent years. It has had a partnership  for more than ten years with Kathmandu, which operates 163 stores across New Zealand and Australia, distributing Oboz on an exclusive basis in both countries.

Kathmandu said that Oboz has achieved compound annual sales growth of 40 percent from 2013 until 2017, generating a gross margin of about 40 percent. The acquisition is expected to be accretive to earnings per share at a mid-single-digit level for the 2019 fiscal year, which will be the first full financial year after the takeover.

Unlike Kathmandu, Oboz focuses almost entirely on its wholesale business in the U.S. and other markets. Xavier Simonet, Kathmandu's chief executive, said in a statement that the deal would enable the Kathmandu group to accelerate its international growth, diversifying in terms of product mix, geography and distribution.

John Connelly, the 71-year-old president and founder of Oboz, will continue to run the business and report to Simonet. He has been searching for an investor to make sure the company ends with a trusted partner who would stick with its authentic positioning and specialist wholesale distribution, with a focus on fit and service.

Sustainability is a key value for the Oboz brand, which has been planting one tree for every pair of shoes or boots sold. Connelly told SGB Media that the agreement with Kathmandu could provide the team with extra resources to support the expansion of the footwear brand's range, its innovation and sustainability initiatives.

The strategic takeover was announced by Kathmandu as part of its results for the first half of its fiscal year, until the end of January. The retailer's sales increased by 4.3 percent to 204.8 million New Zealand dollars (€120.3m-$148.2m) for the six months, while its operating profit jumped by 21.6 percent to NZ$ 18.0 million (€10.6m-$13.0m) and it ended the period with net profit of NZ$ 12.3 million (€7.2m-$8.9m), up by 23.0 percent.

The group's sales in Australia increased to 125.3 million Australian dollars (€78.2m-$96.4m), which was a rise of 3.7 percent in constant currencies, while they declined by 6.4 percent in New Zealand to NZ$ 64.3 million (€37.8m-$46.5m). Again in constant currencies, the entire group's turnover rose by 0.8 percent for the six months. Comparable store sales were up by 2.7 percent in reported terms but down by 0.8 percent at constant exchange rates, with a decline of 1.9 percent for the physical stores and a rise of 13.9 percent for online sales, which made up about 8.0 percent of the group's turnover.

For the six weeks to March 11, the New Zealand group's sales were up by 7.9 percent in constant currencies, with a comparable store sales growth of 7.0 percent, including increases of 7.5 percent in Australia and 5.1 percent in New Zealand.

Oboz' takeover is to be funded through a fully underwritten NZ$ 40 million (€23.5m-$29.0m) placement of ordinary shares, and a non-underwritten share purchase plan to raise up to about NZ$ 8 million, paired with a potential NZ$ 2 million in over-subscriptions. The balance of the transaction will be funded from a new acquisition debt facility and expansion of existing debt facilities.

The two companies are very familiar with each other, since they have worked together for more than ten years. Kathmandu said it was the second-largest customer for Oboz after REI, the leading U.S. outdoor retailer, when Oboz was launched in 2007 by Connelly as a brand of hiking, trail running and multi-sport shoes with a nice mark-up and a good price-quality ratio.

Oboz stands for Outside and Bozeman, the town in Montana where it is based. Connelly launched the brand after a long experience in the outdoor sector, working for brands such as Keen, Vasque, Montrail and Tecnica.

The agreed takeover comes as Kathmandu is starting to expand in international markets, with sales to European retailers. Simonet said in a conference call around its performance for the first half that Go Outdoors has agreed to expand their partnership. While Go Outdoors has sold some Kathmandu apparel for the winter in some of its stores, the British retailer is taking more apparel as well as equipment in all of its stores. Kathmandu has also started a trial at five Sport Scheck stores in Germany for the current spring season.

Kathmandu's international sales nearly doubled in the first half of its fiscal year but they still reached just NZ$ 3.0 million (€1.8m-$2.2m). With Oboz, nearly 10 percent of the Kathmandu group's turnover would be derived from markets outside of Australia and New Zealand.

Kathmandu said the deal is judicious in terms of product mix as well. Simonet pointed out that footwear is a complementary product category that drives consumer traffic in stores, with less seasonality than apparel. On a pro forma basis, the share of the Kathmandu group's sales derived from footwear would roughly double to 16 percent.