PPR CEO Says Volcom Acquisition Shows Scope of Lifestyle Deals
May 02, 2011, 6:02 PM EDTBy Andrew Roberts
May 3 (Bloomberg) -- PPR SA’s agreement to buy skate- and snowboarding clothier Volcom Inc. for $607.5 million is indicative of further acquisitions the company may make as it develops its sports and lifestyle division, Chief Executive Officer Francois-Henri Pinault said.
“When it comes to other market segments, we will have the same type of logic, trying to aim for small or mid-sized companies with potential for growth,” Pinault said by phone yesterday. “It shouldn’t be bigger than this one.”
Volcom, whose products include $79.50 board shorts and $52 messenger bags, will complement Puma, which specializes in soccer and running, Paris-based PPR said. Pinault is seeking to build a portfolio of brands around Puma as PPR has done in luxury goods, where smaller brands including Bottega Veneta support flagship Gucci.
While the purchase would be PPR’s biggest since Puma in 2007, the size is “quite reassuring because the market was worried that PPR could go for a big acquisition,” said Boris Bourdet, an analyst at Natixis Securities in Paris, by phone. He recommends buying PPR shares.
Puma, known for its leaping-cat logo, is targeting an 11 percent increase in sales this year to 3 billion euros ($4.5 billion) and 4 billion euros by 2015. The total sports and lifestyle unit will have revenue of more than 5 billion euros by 2015, Chief Financial Officer Jean-Francois Palus said yesterday, adding that there may be other purchases in the business.
No Other Talks
PPR, which is also looking for acquisition opportunities in its luxury division, isn’t in talks with any other targets, Pinault said. Volcom, which is aiming for sales of between $366 million and $371 million in 2011 and $550 million by 2014, will enhance PPR’s earnings from 2012, he said.
PPR is paying almost 14 times earnings before interest, tax, depreciation and amortization for the 20-year-old Volcom, which is more than the 11.9 times Ebitda it paid for Puma in 2007, according to Bloomberg data. Volcom sales had compound average growth rate of 12 percent in the last five years, Pinault said. Volcom had net cash of $90 million in 2010.
PPR will pay $24.50 a share in cash for Costa Mesa, California-based Volcom, the companies said in a statement. The purchase has an enterprise value of $516.1 million. The bid values Volcom at 24 percent more than its April 29 closing share price of $19.73. The stock rose $4.67, or 24 percent, to $24.40 yesterday in Nasdaq Stock Market trading.
‘Lofty’ Premium
“The lofty transaction premium reflects the strong authenticity of Volcom in the marketplace,” Brian Sozzi, an analyst at Wall Street Strategies Inc., said in a note. PPR, which ruled out buying surf brand Quiksilver Inc. in December, can help Volcom expand internationally, the analyst said.
Volcom has “significant growth opportunities” in the U.S., Europe and Australia, Palus said on a conference call. PPR will develop the company’s store network globally and penetrate untapped markets in Asia, excluding Japan, he said. Volcom products are sold in 40 countries, according to Pinault.
PPR shares fell 15 cents, or 0.1 percent, to close at 120.6 euros in Paris. The company has gained 1.3 percent this year, giving it a market value of 15.3 billion euros.
PPR is reorganizing to focus on luxury goods and sports and lifestyle as it seeks to tap rising demand for branded clothing and accessories in emerging markets. PPR spun off African distributor CFAO in 2009 and sold furniture retailer Conforama in March. The French company plans also to shed online retailer Redcats and the Fnac electronics and media chain and use some of the proceeds for acquisitions.
“There is no time relation between our divestitures and acquisitions,” Palus said.
Volcom Targets
Volcom, known for its diamond-shaped logo, had net income of $22.3 million in 2010 and revenue of $323.2 million, according to Bloomberg data. The company, which says it “embodies the creative spirit of youth culture,” generates two-thirds of sales in the U.S.
Peter J. Solomon Co. acted as financial adviser to PPR while Wells Fargo Securities LLC advised Volcom, according to the statement. The transaction will be completed in the third quarter, according to the statement. Volcom officials who own 14.4 percent of the outstanding shares have agreed to tender all of their shares.
--Editors: Jim Silver, John Lear.
To contact the reporter on this story: Andrew Roberts in Paris at aroberts36@bloomberg.net
To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net
