New York-based multititle cataloger Redcats USA is turning its attention to the outdoors. On May 5 it announced a definitive agreement to acquire South St. Paul, MN-based The Sportsman’s Guide for $31 a share, or roughly $265 million. Sportman’s Guide had sales of $285.1 million in 2005.
The U.S. division of French direct marketing powerhouse Pinault-Printemps-Redoute (PPR), Redcats USA sells primarily women’s apparel and home products via titles that include Chadwick’s of Boston, La Redoute, Roaman’s, and BrylaneHome; it also mails the KingSize catalog of clothing for big-and-tall men.
The Sportsman’s Guide specializes in outdoor gear and sporting goods. In June 2004 it purchased The Golf Warehouse (TGW), and this past March it entered the baseball and softball markets with two Websites, www.BaseballSavings.com and www.SoftballSavings.com. Sportsman’s Guide president/CEO Gregory R. Binkley and other members of senior management have agreed to remain with the company after the merger.
Neither The Sportsman’s Guide nor Redcats USA would comment on the transaction. But David Solomon, managing director for New York-based investment banking firm Goldsmith Agio Helms, says he was surprised by the unlikely alliance between an apparel cataloger and an outdoor mailer — although he notes, “Redcats CEO Eric Faintreny has been talking about moving away from his dependence on apparel.”
Indeed, “the purchase of Sportsman’s Guide would seem to indicate a strategic shift in Redcats USA’s focus from women’s to men’s and from soft lines to hard lines,” says Ken Hathaway, president of Litchfield, CT-based consultancy Hathaway & Lane.
Nonetheless, integrating Sportsman’s Guide into the Redcats fold could carry some risk. “The product line has different distribution requirements,” Hathaway says. “The order curve is different and with different geographic skewing. The customer service requirements for product knowledge are far more specialized than for the current Redcats product lines.”
“Redcats USA is a female demographic, and The Sportsman’s Guide is a male demographic,” Solomon says. “Redcats’ home and apparel businesses are probably 90% female. If you’re looking for cross-selling synergies and demographic, it’s not going to happen with this deal. They could leverage inhouse expertise on direct marketing and sourcing, but that’s about it. It’s a diversification. Companies do that when they feel they are running out of room for growth.”
Compensating for a pending loss?
Fred Anderson, founder of South Orange, NJ-based investment bank Anderson Direct, says the acquisition could be the first step in an overall strategy to compensate for the pending loss of Redcats’ Lane Bryant catalog of plus-size women’s apparel. The trademark to that title is scheduled to revert back in 2007 to Bensalem, PA-based retailer Charming Shoppes, which has owned and operated the Lane Bryant stores since 2001. Its acquisition of multititle mailer Crosstown Traders last year was, as Charming Shoppes chairman/CEO/president Dorrit Bern said at the time, “a key step in our preparation for the launch of our own catalog.”
Solomon estimates that Redcats USA paid about 12.8 times earnings before interest, taxes, depreciation, and amortization (EBITDA). He pegs the enterprise value — debt plus equity minus cash — at $250 million. The deal is expected to close in the third quarter.
With a scarcity of $100-million-plus companies in the direct marketing industry, the deal illustrates just how far industry leaders such as Redcats will stretch from their core to pick up $300 million in revenue, says Michael Petsky, a partner with New York-based investment bank Petsky Prunier. And the estimated 12.8 multiple demonstrates that sizable properties such as Sportsman’s Guide will not come cheaply.