Capstone Headwaters Headwaters... · Strategic buyers continue to drive the majority ... 08/03/17...

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CONTRIBUTORS

Sophea Chau

Director

617-619-3307

[email protected]

Jacob Voorhees

Managing Director

617-619-3323

[email protected]

Lisa Tolliver

Director

312-674-4532

[email protected]

January 2018www.capstoneheadwaters.com

Source: Capital IQ and Capstone Headwaters Research

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Capstone Headwaters

MERGER & ACQUISITION OVERVIEW

Attractive economic factors such as the low unemployment rate (4.1%) and a

high consumer confidence level (125.9), have created favorable conditions for

the Recreational Products industry. Additionally, according to the US Bureau of

Economic Analysis, per capita disposable income rose to $39,277 in October—

the second-highest level in a decade. As more Americans gain earning power

and economic stability, discretionary spending on leisure activities and sports is

likely to increase and drive industry demand.

Another positive industry tailwind is the growing preference towards health-

conscious and environmentally friendly activities. Nearly 50.0% of Americans

(144.4 million people) participated in at least one outdoor activity in 2016—two

million more than in 2015, according to the Outdoor Industry Association (OIA).

According to the American Recreation Coalition, segments which have recently

experienced significant growth include Archery (with a 20.0% increase in activity

between 2012-2015), Recreational Vehicles (with an expected 11.4% increase in

shipments between 2016-2017), Boating (with an expected 6.0% increase in boat

sales between 2016-2017) and Camping (with household camping participation

up 58% from 2014).

TABLE OF CONTENTS

M&A Overview

Segment Highlights

Notable Transactions

Select Transactions

Public Company Data

Firm Track Record

RECREATIONAL PRODUCTS

Q1 2018

M&A Activity: Recreational Products

47

3139

63

98

67

88 89

0

20

40

60

80

100

120

2010 2011 2012 2013 2014 2015 2016 2017

Driven by continued economic growth and favorable industry fundamentals, the Leisure

Products segment has experienced steady growth and is poised to benefit from rising

disposable income. The market for RVs and camping products, in particular, is expected to

grow in conjunction with rising levels of disposable income. According to IBISWorld, the RV

and Camping Segment is expected to grow 2.4% annually to 2022, while disposable income

is projected to grow 2.7% during the same period.

With 23 deals announced or closed in 2017, segment activity remains robust and has

accounted for 26.4% of all deals in the Recreational Products industry. While volume within

h

Throughout 2017, 89 deals were announced or closed in the Recreational Products industry—positioning deal activity to

meet, or more likely exceed, that of 2016. Public company EBITDA multiples have also remained strong with a median of

10.7x, well above the 9.1x median in the overall middle market. Strategic buyers continue to drive the majority of deal

activity and have accounted for 61.8% of transactions in 2017. At the same time, private equity buyers (equipped with more

than $545.5 billion in dry powder) have shown an increased interest in the industry, and drove 38.2% of deals as compared to

29.3% in all of 2016.

SEGMENT HIGHLIGHT: BIKES

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SEGMENT HIGHLIGHT: LEISURE

SEGMENT HIGHLIGHT: WINTER SPORTS

Cycling is gaining prominence as more Americans utilize bikes for both transportation and

recreation. According to the US Department of Transportation, 13.0% of travelers in the US

take at least one bicycle trip per day. State governments have supported the industry by

expanding roadways to include bike-only lanes and by installing public bike-sharing systems

in major cities. According to IBISWorld, the Bicycle Dealership and Repair industry increased

at an annualized rate of 2.5% over the past decade to 2017. Companies that target high-

income consumers with products such as carbon-fiber race bikes are expected to be well-

positioned for continued growth in the current market.

The Bicycle industry is highly fragmented and companies have used acquisitions as a means to gain dominance in the space.

Merger and acquisition (M&A) activity in this segment accounted for 10.1% of activity in 2017. Acquired bicycle companies

included Middleton Cycle Shop, Bike24 (highlighted on the following page), City Bicycle Works, Collins Cycle Shop, Bike

World, Vanhawks, Beeline Bikes and Revolution Cycles for a total of nine identified transactions.

the segment has remined fairly in line with that of 2016, buyer breakdown has changed drastically, as financial buyers laden

with dry power have increased their share of deals to 47.8% in 2017 compared to just 20.7% in 2016. As a result of the

increased competition to win deals, average disclosed transaction values have reached an impressive $113.5 million.

Participation in Winter Sports has increased 1.7% over the past three years, according to

Snowsports Industries America (SIA) with downhill skiing being the most active segment

(approximately 11.9 million participants last season). Average snowfall at ski resorts

increased by 40.0% in the 2016-2017 season as compared to 2015-2016, contributing to the

overall rise in participation, according to the American Recreation Coalition.

In October, leading global mountain resort operator Vail Resorts agreed to acquire three

outdoor retail stores in the historic ski town of Breckenridge, Colorado from Breckenridge

Ski Enterprise. Vail Resorts has made 11 acquisitions over the past five years for a total

value of $1.6 billion.

Recreational Products | Q1 2018

NOTABLE TRANSACTIONS

Several notable transactions were announced or completed in the Recreational Products industry during 2017. Select

transactions are outlined below, followed by a more comprehensive list on the following table.

Camping World Holdings acquires Uncle Dan’s Outfitters

(October 2017)

Camping World Holdings, Inc. (CWH), the nation’s leading outdoor and camping retailer, acquired

Uncle Dan’s Outfitters (Uncle Dan’s), a Chicago-based specialty retailer of outdoor gear, apparel and

camping supplies, for an implied enterprise value of $8.2 million. In the press release, Chairman of

CWH Marcus Lemonis noted, “Uncle Dan's Outfitters strengthens Camping World Holding's efforts

to build a seamless approach to the outdoor lifestyle market and further positions the company to

expand the reach and product offerings of our e-commerce business.”

Throughout 2017, CWH has been one of the most active buyers in the space, having acquired a total of

three companies. Prior to acquiring Uncle Dan’s, CWH acquired Active Sports, Inc., an online retailer of

outdoor equipment, for an implied enterprise value of $70.5 million and Grander Mountain Company, a

retailer of a variety of outdoor products and accessories, for an implied enterprise value of $34.1 million.

The heightened appetite for acquisitions is indicative of CWH’s strategy to gain additional scale and

penetrate new markets by diversifying offerings and establishing a multichannel sales approach.

Wiggle acquires Bike24

(October 2017)

UK-based Wiggle, an online cycling equipment retailer, has agreed to acquire German competitor

Bike24. Terms of the deal were not disclosed. Founded in 2002, Bike24 sells bicycles, frames,

components, related apparel and sports nutrition products. The acquisition is in line with Wiggle’s

strategy to expand its presence in mainland Europe, and complements the 2016 merger with

Northern Ireland-based Chain Reaction Cycles (CRC). Much like CRC, Bike24 will continue to operate

as a separate brand. In a statement, Wiggle CEO Will Kernan commented, “The Bike24 brand, team

and customer proposition will remain and will be further supported by the WiggleCRC business.

Customers across the group will benefit from a broader offering of leading brands, great service and

compelling value.”

Court Square Capital acquires PlayCore

(October 2017)

New York-based private equity firm, Court Square Capital Partners (Court Square), acquired

PlayCore, a manufacturer of educational play and recreational products, from fellow private equity

firm, Sentinel Capital Partners (Sentinel). Terms of the deal were not disclosed. Founded in 1979 and

headquartered in Chattanooga, Tennessee, PlayCore is the nation’s largest manufacturer of

playground equipment. Since being acquired by Sentinel in 2014, PlayCore has acquired 14

companies, expanding its portfolio to 27 brands with more than 8,000 customers.

On the acquisition and the future of the company, PlayCore President and CEO Roger Posacki noted,

"To be quite candid, nothing's changing. We're going to keep investing in core growth and

acquisition growth going forward. There's a lot of opportunity for future growth."

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Acquires

Acquires

Acquires


SELECT TRANSACTIONS

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Date Target Acquirer Target Business Description

Enterprise

Value (mm)

EV / LTM

Revenue EBITDA

11/29/17 Big Fish GamesAristocrat

TechnologiesDistributes casual games for customers worldwide. $990.0 2.2x 11.9x

11/15/17 Sport ScienceEpic Brand

Management

Produces and distributes apparel for sports, running,

walking and various mountain activities.- - -

11/14/17Middleton Cycle

ShopWheel & Sprocket Owns and operates a bicycle shop. - - -

10/31/17War Eagle Custom

Lures

PRADCO

Outdoor BrandsManufactures fishing equipment. - - -

10/23/17 Bike24 WiggleSells bicycles, frames, sports nutrition products and related

apparel products.- - -

10/18/17 City Bicycle Trek BicycleOwns and operates a bike shop that sells bikes, clothing

and accessories.- - -

10/16/17 Breckenridge Ski Vail Resorts RetailOwns and operates outdoor sports clothing and

equipment stores.$8.2 - -

10/12/17 Uncle Dan’sCamping World

HoldingsOperates outdoor apparel stores. - - -

10/10/17 Nielsen-KellermanClearview

Capital

Designs waterproof environmental and sports performance

instruments.- - -

10/02/17 PlayCoreCourt Square

Capital

Manufactures and sells educational play and recreation

products.- - -

10/02/17 Rogue RunningThe Running

Specialty GroupOffers marathon and trail running programs. - - -

10/01/17 Victory Tailgate KLH CapitalManufactures and retails customized tailgating and

backyard games and accessories.- - -

09/13/17Collins

Cycle Shop

Hutch’s Bicycles

StoreOperates a bicycle store. - - -

09/01/17Bravo Sports,

Outdoor DivisionShelterLogic

Designs and manufactures outdoor chairs and related

accessories.- - -

08/21/17 Traeger Pellet Grills AEA Investors Manufactures wood pellet grills for outdoor cooking. - - -

08/13/17 Alliance Sports Capital SouthwestDistributes sports and outdoor products to customers

worldwide.- - -

08/03/17 TravisMatthew Callaway GolfOffers golf apparel and accessories including luggage,

shoes, socks, belts and hats.$125.5 - -

07/27/17 Best Made Bolt Threads Manufactures outdoor apparel and accessories. - - -

07/27/17 Active SportsCamping World

HoldingRetails outdoor equipment through an online platform. $70.0 - -

07/14/17 K2 SportsKohlberg &

Company

Designs and manufactures sporting products intended for

skiing and other recreational activities.$240.0 0.7x -

07/12/17 Fish TalesBattenfield

Technologies

Manufactures sportsman knives and tools for fishing and

hunting.$12.0 - -

07/10/17Superior

RecreationalPlayCore Manufactures playground and park stuctures. - - -

07/06/17 Cobalt Boats Malibu BoatsManufactures and supplies luxury power boats intended for

recreational services.$130.0 0.9x -

07/05/17 Cabela’s Bass Pro ShopsRetails hunting, fishing, boating, camping, shooting and

related outdoor recreation products.$4,832.4 1.2x 11.8x

06/29/17 West MarineMonomoy

Capital Partners

Retails boating supplies, gear, apparel, footwear and

related water life products.$290.7 0.4x 7.7x

Source: Capital IQ and Capstone Headwaters Research


PUBLIC COMPANY TRADING & OPERATING DATA

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Price % 52 Wk Market Enterprise LTM EV / LTM

Company 12/28/17 High Cap Value Revenue EBITDA Margin Revenue EBITDA

Amer Sports Corp. $27.42 87.1% $3,159.7 $3,886.3 $3,137.3 $320.9 10.2% 1.2x 12.1x

Brunswick Corporation $55.58 87.1% $4,873.8 $4,923.1 $4,736.8 $603.9 12.7% 1.0x 8.2x

Callaway Golf Co. $14.06 90.0% $1,329.2 $1,327.2 $1,020.8 $108.2 10.6% 1.3x 12.3x

Clarus Corporation $7.90 98.8% $237.3 $263.0 $159.4 $0.5 0.3% 1.6x NM

Dorel Industries Inc. $24.63 77.7% $800.6 $1,249.9 $2,549.4 $137.0 5.4% 0.5x 9.1x

Escalade Inc. $12.60 87.7% $181.1 $205.5 $170.9 $18.7 11.0% 1.2x 11.0x

Johnson Outdoors Inc. $63.75 83.7% $626.9 $516.5 $490.6 $55.2 11.3% 1.1x 9.4x

Lafuma SA $27.23 84.4% $193.4 $168.0 $185.8 $11.0 5.9% 0.9x 15.3x

Mean 8.4% 1.1x 11.0x

Median 10.4% 1.1x 11.0x

Harmonic Mean 1.9% 1.0x 10.6x

EV = enterprise value; LTM = last twelve months

$ in millions, except per share data

NM = Not Meaningful

45.3%

26.6%

45.4%

30.8%

23.6% 25.1%

43.0% 42.0%

10.2% 12.7 10.6%

0.3%5.4%

11.0% 11.3%5.9%

0%

10%

20%

30%

40%

50%

Amer Sports Brunswick Callaway Golf Clarus Dorel Industries Escalade Johnson Outdoors Lafuma

Gross Margin % EBITDA Margin %

Last Twelve Month Margin Performance

Last Twelve Month 1-Year Revenue Growth

0.8%

7.9%

18.6%

5.7%

-2.8%

3.2%

13.1%

-3.3%-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

Amer Sports Brunswick Callaway Golf Clarus Dorel Industries Escalade Johnson Outdoors Lafuma

Source: Capital IQ and Capstone Headwaters Research as of December 28, 2017


FIRM TRACK RECORD

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strategic joint venture

financial advisory

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Jacob Voorhees

Managing Director

[email protected] | 617-619-3323

Jacob is a founding member of Capstone Partners. He focuses on asset positioning, strategy articulation,due diligence and negotiations coordination. Formerly, Jacob was with Andersen Corporate Finance LLC,where he focused his efforts on the software and direct marketing industries. He started his career in NewYork City with Rabobank International, a multi-national Dutch investment bank headquartered in Utrecht,the Netherlands. While at Rabobank International, Jacob worked in the mergers and acquisitions groupfocusing on cross-border transactions in the consumer products, food and beverage industries.

The M&A Advisor named Jacob to its prestigious 40-UNDER-40 deal makers list in 2012. Jacob receivedan MBA from the Sloan School of Management at Massachusetts Institute of Technology (MIT) and a BSfrom Cornell University. Jacob is qualified as a General Securities Representative.

Lisa Tolliver

Director


Lisa has over 18 years of experience in the investment banking industry, primarily focused on advisingmiddle market private business owners in liquidity related transactions. As a Director based in Capstone’sChicago office, she works closely with clients to advise and execute domestic and cross-border M&Atransactions, recapitalizations and capital raises. Prior to Capstone, Lisa worked in the Capital StrategiesGroup at Morgan Stanley Smith Barney and also spent 10 years working for the middle market investmentbanking arm of Citigroup, where she was involved in the evaluation, marketing and closing of numeroustransactions involving private businesses and corporate divestitures. Over her career, Lisa has developedM&A expertise in several industry sectors including government & defense, industrials, consumerproducts, e-commerce and technology-enabled business services. Lisa received her BA on academicscholarship from Illinois State University and is a Series 7 and 63 Registered Securities Representative.

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RECREATIONAL PRODUCTS REPORT CONTRIBUTORS

Sophea Chau

Director


Sophea specializes in mergers & acquisitions, private placements and financial advisory services. Her

responsibilities include providing financial and valuation analysis, performing due diligence and drafting all

marketing materials.

Prior to joining Capstone, Sophea was an analyst at FTN Midwest Securities, a full-service investment

banking firm based in Cleveland. While working in their New York office, she focused on M&A advisory

for middle-market companies in a variety of industries, including healthcare, pharmaceutical services and

marketing & advertising. Sophea is Vice President of the Columbia Alumni Association of Boston and

holds a Bachelor of Arts in Economics from Columbia University.


Report Title | Q4 2017

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www.capstoneheadwaters.com

Capstone Headwaters is a premier investment banking firm dedicated to serving the corporate finance needs of middle market

business owners, investors and creditors. Our team provides strategic merger and acquisition advise, capital formation, business

consulting and specialty services across 16 industry verticals to meet the lifecycle needs of emerging enterprises. Headquar-

tered in Boston, MA and Denver, CO, Capstone Headwaters has 18 regional offices and partnerships with 30 firms covering 34

countries.

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