By Breakingviews
The initial public offering trail for Amer Sports (AS) warrants a black-diamond rating. The maker of Salomon skis and Arc’teryx parkas is sounding out new investors after a group led by ANTA Sports Products (OTCPK:ANPDY) bought it for about $5 billion in September 2019. Impressive growth in China should give the valuation a lift, but chunky debt and the Wilson brand slightly weaken the company’s competitive edge.
Amer has been on a tear. Its backers, which include Lululemon Athletica (LULU) founder Chip Wilson and Asian buyout shop FountainVest, oversaw a 61% increase in adjusted EBITDA during the first nine months of 2023 from a year earlier, on the back of a 30% boost in revenue. A post-pandemic surge in China, where Anta is based, was a big reason.
The country now accounts for almost 20% of the top line, quadruple the proportion in 2017. Amer’s upscale Arc’teryx brand, worn by mountain rescue teams, is doing especially well, generating nearly half its $940 million of sales through Sept. 30 in Greater China. Salomon, which also makes running shoes, grew at a roughly 170% clip in the region over the same span, albeit starting from a much smaller base, as winter sports become more popular.
The unit housing Wilson tennis rackets and Louisville Slugger baseball bats is steady but hasn’t achieved the same success. Representing about 30% of sales, it is also Amer’s slowest growing business, at 10%, and counts just 7% of revenue from China. Moreover, the 6% operating profit margin from ball and racquet sports, is the weakest of the three divisions.
Assume Amer’s EBITDA growth rate cools off a bit, to 30%. Using an annualized figure for last year would imply about $730 million in 2024. Apply the approximately 20 times at which Lululemon, Nike (NKE) and On trade, and Amer’s enterprise would be worth $15 billion. Such a valuation would be too generous, however.
While its three peers are net cash, Amer is likely to be carrying net debt of about $1.8 billion, equivalent to 3 times last year’s estimated EBITDA. The figure backs out related-party borrowing, much of which will be converted into equity or repaid with IPO proceeds.
Using Clarus (CLAR) and Topgolf Callaway Brands (MODG) to apply a suitable discount imputes a multiple of 16 times, or roughly $12 billion. Amer’s equity would then be worth closer to $10 billion, and lead to a potentially smoother run.
Context News
Finnish sports gear company Amer Sports, which owns the Arc’teryx, Salomon and Wilson Sporting Goods brands, submitted an initial public offering prospectus to the U.S. Securities and Exchange Commission on Jan. 4. The company, owned by China’s Anta Sports and other investors, reported revenue of $3.1 billion for the nine months ended Sept. 30, a 30% increase from the previous year, and EBITDA of $401 million, up 71%. Amer’s net loss widened to nearly $114 million. Amer is seeking a potential valuation as high as $10 billion, Bloomberg reported on Jan. 4, citing unnamed sources. In December 2018, a consortium led by Anta – which included Chinese technology giant Tencent, private equity firm FountainVest and an investment firm owned by Lululemon Athletica founder Chip Wilson – agreed to pay 40 euros a share in cash for Amer in a deal that valued the company at about $5.2 billion.
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Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.
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