PPR's Volcom Acquisition Brings Back the $600+ Million Deal

Friday, May 6, 2011

California brand Volcom is acquired by French luxury company PPR.

The $607 million purchase price French luxury conglomerate PPR paid for California streetwear brand Volcom marks a return to the high acquisition prices that apparel brands commanded before the Great Recession.

“The acquisition is significant in that it is large in terms of dollar amount,” said Paul Zaffaroni, director of investment banking for investment firm Roth Capital Partners.

Volcom’s acquisition represents the largest big-ticket acquisition of an apparel brand in recent years.

In 2007, American Apparel sold for $360 million and VF Corp. paid $775 million for 7 For All Mankind. More recently, aside from J Crew’s $3 billion deal last year, payouts for partial or complete acquisitions have been more modest. J Brand sold a portion of its business for a reported $85 million, Not Your Daughters Jeans sold half of its businessfor close to $100 million, Robert Rodriguez sold for $28 million, Ed Hardy sold a majority stake for $55 million, Anchor Blue Brands and Miller’s Outpost sold for $500,000, and Mo Industries, which owned the Ella Moss and Splendid contemporary brands, sold two-thirds of its business to VF for $161 million.

From a valuation standpoint, the Volcom/PPR deal is also significant because PPR is paying 15 times Volcom’s Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA), Zaffaroni said. “This is a premium to current valuations in the public market, which are eight to 11 times EBITDA.”

Not every brand is going to garner Volcom’s steep price tag, but Zaffaroni said activity and interest in acquiring strong brands and retailers has grown significantly in the past six months. “From a demand standpoint, there are a lot of companies that have accumulated record levels of cash on their balance sheet over the last two to three years. If they want to grow, they have to do something with it,” he said. Conversely, there are plenty of strong companies and better brands that are looking for investors or buyers now that valuation levels have increased and pockets are full.

“This trend is going to continue,” Zaffaroni said, hinting that additional important deals are in the works.

Shopping for street, skate

The Volcom/PPR acquisition was announced on May 2, when the Costa Mesa, Calif.–based Volcom Inc. announced that 100 percent of its stock would be acquired by PPR, the Parisbased luxury and retail group that also owns the Puma, Gucci, Yves Saint Laurent, Alexander McQueen and Stella McCartney labels. According to a release from the companies, PPR will buy all of Volcom’s shares for $24.50 each—representing a 37 percent premium over the stock’s three-month trading average—making it a deal worth more than $607 million. (The enterprise value, which factors in debt and other financial considerations, is $516 million.)

For PPR, the Volcom acquisition (which includes Electric, its eyewear and accessories brand) represents a major step in growing its Sport & Lifestyle Group, which is currently anchored by Puma. The shoe and activewear brand was acquired in a $7 billion deal in 2007.

“Volcom is arguably one of the most desirable global actionsports brands with an authentic legacy rooted in surf, skate and snow sports,” said Francois-Henri Pinault, PPR’s chairman and chief executive, in a statement. “Volcom is complementary to Puma, and we are convinced that its integration into our Sports & Lifestyle Group will speed up its development.”

Late last year, PPR was rumored to have been considering buying Quiksilver, the veteran Huntington Beach, Calif.–based surf/skate brand, or DC, Quik’s popular skate shoe brand. Ultimately, PPR executives decided that the surf/skate biggie, which has annual sales that top $1.8 billion, had “reached a level of maturity,” Pinault told MarketWatch. By comparison, Volcom reported a profit of $23.3 million and revenues of $323.2 million in 2010 and is planning to reach sales of $550 million by 2014. “My priority was to look at a midsize brand for our portfolio. It was, for me, a better target financially,” Pinault said. PPR had reported revenues of $14.6 billion in 2010.

During a conference call, PPR executives said the Volcom acquisition would give Puma “increased access to the youth market.”

Volcom stands to gain from PPR’s “international market knowledge, sourcing capabilities and other operational expertise in areas such as product development and retailing to help the company hellip; grow globally, while preserving the elements that make the brands authentic,” according to Volcom founder Richard “Wooly” Woolcott.

The deal, which is expected to be completed during the third quarter of this year, is already running into resistance. Several law firms have announced investigations into the merger, citing concerns that include possible breaches of fiduciary duty and other violations in connection with the sale.