Is the Kathmandu Holdings Ltd (ASX: KMD) share price a buy after announcing it’s going to buy Rip Curl for $350 million.
Kathmandu was founded in 1987 and now operates in Australia, New Zealand and the UK. It’s one of Australia and New Zealand’s largest outdoor gear retailers and now has over 165 stores across the two countries. The Kathmandu name shares the same name as Nepal’s capital, which is near to the Himalayas.
Kathmandu Is Buying Rip Curl For $350 Million
Kathmandu has announced it’s going to acquire 100% of Rip Curl for $350 million, or NZ$368 million and fund it partly with a capital raising.
The acquisition price represents 7.3x the enterprise value dividend by the FY19 pro forma normalised EBITDA (click here to learn what EBITDA means)
For those that don’t know, Rip Curl is a global surf brand and action sports business that was founded 50 years ago. It’s now a designer, manufacturer, wholesaler and retailer of surfing equipment and apparel and operates in Australia, New Zealand, North America, Europe, South East Asia and Brazil.
One of the reasons why Kathmandu wants to acquire Rip Curl is that it will create a global outdoor and action sports business with revenue of NZ$1 billion, along with Oboz. There will be to leading Australasian brands and provides the opportunity for the company to considerably diversify its geographic footprint, channels to market and its seasonality profile.
The combined business will have a footprint of 341 owned retail stores, 254 licensed stores and over 7,300 wholesale doorways globally – which should mean a benefit of economies of scale.
Rip Curl can help Kathmandu expand into North America and Europe, whilst Rip Curl can benefit from Kathmandu’s online capabilities.
Kathmandu expects pro forma profit / earnings per share (EPS) to increase by more than 10% before the expected synergies.
Does This Make Kathmandu A Buy?
Kathmandu is funding this by a combination of a capital raising of NZ$145 million and a placement of NZ$32 million of new Kathmandu shares to the founders and CEO of Rip Curl, with the rest funded by debt.
Sometimes these big deals can cause problems for a company, but Kathmandu has shown (so far) that it has done well with the Oboz acquisition. I’m not looking to buy Kathmandu – I think retail is too tough of an industry to be invested for a long time – and I’d want to see this acquisition be fully integrated and working well before thinking it’s a buy.
For growth I would much rather think about the rising shares in the free report below over Kathmandu.
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