Gander Mountain is back into catalogs in a big way. The St. Paul, MN-based sporting goods retailer announced Dec. 6 it has acquired water sports cataloger/retailer Overton’s for approximately $70 million.
Calls to Gander Mountain were not returned by press time. According to a release, the price included the repayment of Overton’s existing debt at the closing. The purchase was financed through the issuance of $24 million in Gander Mountain common stock at a purchase price of $5.90 per share, a $40 million term loan from Bank of America, and borrowings under the company’s revolving credit facility. Gratco, an affiliate of David Pratt, Gander Mountain’s chairman, and Holiday Stationstores, which is an affiliate of both Ronald Erickson, Gander’s vice chairman, and Gerald Erickson, a director of the company, purchased the common stock.
Greenville, NC-based Overton’s will operate as a wholly owned subsidiary of Gander Mountain. Overton’s in 2006 recorded sales in excess of $90 million and mailed more than 15 million catalogs. Its operations include a fulfillment center and call center large enough to accommodate Gander Mountain’s Internet and catalog ventures.
Industry experts applauded the deal. “It seems to be a smart move,” says Craig Battle, managing director of Princeton, NJ-based investment bank Tucker Alexander. “It looks like it was financed by senior executives at Gander Mountain so they must feel pretty confident if they’re using their own dough.”
Overton’s rumored to have excess capacity, “so Gander can probably leverage that,” Battle says. In addition to balances Gander Mountain’s with its warm-weather line of goods, the Overton’s deal gets Gander back in the catalog business, he notes. “Overton’s is a pretty profitable catalog/online business that overlaps nicely with Gander. It’s a nice strategic fit in terms of product extension.”
Stuart Rose, managing director for Wellesley, MA-based investment bank Tully & Holland, notes that Gander Mountain’s same-store sales were down for the second straight quarter and its store operating expenses are increasing. “Overton’s will provide a much needed sales boost to cover the first half of the year. This will be a good opportunity to balance the seasonal sales.”
The move could also be in response to the continued growth of Cabela’s and Bass Pro Shops, Rose adds. “Gander Mountain needs a lift so it can keep up with stronger competitors.”
But most agree that the deal’s key advantage is providing Gander Mountain with a fast track back into the catalog business. After Gander sold its direct arm to rival Cabela’s in 1996 for $35 million, it lost the right to use its own brand or logo in direct marketing in 2005 following a two-year legal battle with Cabela’s.
Lawsuits filed in 2003 claimed Gander violated its sales agreement by selling shotgun barrels on its Website; Gander claimed the agreement wasn’t meant to give Cabela’s permanent control over its direct marketing.
A federal judge in July reversed an August 2005 ruling, giving Gander Mountain the legal right to use its logo and name in all direct marketing channels, including catalogs and e-commerce. The previous ruling gave Gander the right to enter direct marketing, but usage of the logo and name was unclear.
Lee Helman, managing director with New York-based investment bank Financo, says the favorable court ruling in July “paved the way for this deal. Overton’s provides them with the platform into the catalog and Internet sectors with its infrastructure as well as the strong marketing team and experience.”
Helman says the deal is another example of “the convergence of channels in creating a truly multichannel retailer with a retailer acquiring the direct assets and expertise. The challenge will be in the integration and preservation of two distinct businesses.”