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Kathmandu to buy Rip Curl for $350 million

Kathmandu on Tuesday announced it will acquire the iconic global surf brand Rip Curl for $350 million.

The move follows Kathmandu’s acquisition of North American footwear brand Oboz in April 2018 for $97 million, and is expected to further diversify Kathmandu’s geographic footprint, channels to market and seasonality profile.

“This is a fantastic opportunity for Kathmandu to grow and diversify,” Kathmandu CEO Xavier Simonet said in a statement about the acquisition.

Opportunity to accelerate expansion

Founded in Bells Beach, Australia, in 1969, Rip Curl offers a range of men’s and women’s surfwear, equipment and accessories, which sell mostly in the summer months, in contrast to Kathmandu’s stronger outdoor and winter offering.

The brand has a global retail, wholesale and e-commerce presence, including in key markets where Kathmandu is looking to expand, such as North America and Europe.

The acquisition creates an opportunity for Kathmandu to leverage Rip Curl’s wholesale relationships to accelerate its international expansion and reduce its reliance on pure retail, Simonet said in a call with investors on Tuesday.

For instance, he said 17 of Rip Curl’s 20 wholesale accounts in Europe could conceivably carry Kathmandu and Oboz products, since the wholesale partners offer a wide range of outdoor products, not just surf products.

The combined businesses will have a footprint of 341 owned retail stores, 254 licensed stores and 7300 doorways globally, and annual revenue of more than $948.4 million, based on Kathmandu’s FY19 revenue of $505.7 million and Rip Curl’s FY19 pro forma normalised revenue of $442.5 million.

“Importantly, there is also strong cultural alignment between our brands, underpinned by a shared focus on quality, innovation and sustainability,” Simonet said.

Brands to remain separate

Rip Curl enjoys a global reputation for technical innovation in the
surf category – which grew at 3.6 per cent CAGR in the five years to 2018, and 4.3 per cent in Australia – and operates design and development in key surf spots around the world, including Torquay in Australia, Costa Mesa in the US and Hossegor in France.

While the brand has a strong social media following, it is relatively new to e-commerce, an area where Kathmandu brings expertise.

“We are excited about the opportunity to partner with another iconic Australasian brand that shares our vision of creating high quality functional products for outdoor and action enthusiasts,” Rip Curl CEO Michael Daly said in a statement.

“We look forward to continuing to grow the Rip Curl brand as part of the Kathmandu Group.”

Daly will continue to lead Rip Curl from its headquarters in Torquay and will report to Simonet. Each brand will retain operational ownership of their respective businesses, though the new group will consider using shared support functions where operational value can be derived.

The acquisition is being funded through a combination of equity raising and new debt, comprising $158 million via a 1 for 4 pro-rata accelerated entitlement offer, and the placement of $31 million in new Kathmandu shares to the founders and CEO of Rip Curl. The balance will be funded from new senior secured debt facilities.

The transaction is expected to close by the end of calendar year 2019, subject to shareholder approval and customer closing requirements.

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