SPACInsider contributors Anthony Sozzi and Sam Beattie this week compiled their three favorite potential SPAC targets among sports-focused companies. We look at why they are compelling and why each could be a fit for a blank-check merger.
After a rough week in the market we could all use some light entertainment. Watching live sporting events is already normalized again and that trickles down to youth sports as well. Adult Americans still have some exercising to do themselves with about half of the population having gained an average of 29 lbs. during the pandemic.
The sports and adjacent technology and services sectors were estimated to be worth about $172 billion with 8% annual growth, which will likely bump up with inflation. This is projected to hit $221.3 billion in 2026, with growth particularly high in new markets like China.
With most of its competitors already public, New Balance is one of the few major athletic consumer brands left that is still private.
New Balance is also interested in reaping rewards for the various company-level transformations it is undergoing. Its President and CEO Joe Preston describes it as “effectively a new company” coming out of the pandemic with a much larger focus on direct-to-consumer (DTC) sales and a hard drive towards sustainability.
The former focus got it to about $4.4 billion in revenue in 2021 and it believes it can cross $5 billion this year. The fact that it is putting any of these figures out there could be a sign that management has the public markets on its mind.
On the sustainability side, New Balance has pledged to gather 50% of its polyester from recycled sources and 100% of its leather from ranches committed to regenerative agriculture by 2025.
It is also more insulated from supply chain snags than its competitors because, although it sources raw materials from abroad, much of its production continues to be US-based. It just opened a new 80,000 square foot shoe factory near its Boston headquarters while also opening a 420,000 square foot complex for sports training and researching it calls The Track.
In addition to fueling these initiatives, a SPAC listing could get New Balance back on the M&A path. It rolled up seven peers between 2003 and 2016, according to Pitchbook, and it may have more opportunities to do so in the coming quarters with retail brands potentially under stress in a recession.
While people have been venturing out from quarantine to greater and lesser extents since the pandemic landed, outdoor recreation still accounted for 1.8% of US GDP in 2020, according to the Bureau of Economic Analysis.
Park City, Utah-based Backcountry was spun out of Qurate Retail Group (NASDAQ:QRTEA) in 2015 and it has grown into a vertically integrated seller of outdoor goods with distribution centers in Utah and Virginia and other major offices in Portland, Costa Rica and Germany. From Germany it runs the its Berg Freunde brand of outdoor gear.
But it is also has strong footholds in channels beyond camping via its Competitive Cyclist and Motosport.com ecommerce brands. It has further widened this footprint with an affiliate program offering participating sites a 4% to 12% commission on sales.
It was TPG Consumer and AlpInvest Partners that pulled Backcountry away from Qurate for $388 million seven years ago and therefore could be near their exit horizon. SportsMap Tech (NASDAQ:SMAP) may be the right SPAC to usher the company to its next stage of growth. It has until April 2023 to complete a transaction under its initial timeline with about $115 million in trust.
Another PE portfolio company that could see itself taking the next step via a SPAC is Varsity Brands.
It provides equipment for high school and youth sports as well as related attire like graduation gowns and cheerleader uniforms. Schools could be in for a spree of refurbishing such stocks after some time with team sports nixed and instruction going remote.
Varsity is the largest team sports equipment and apparel distributor in the US and about 2,000 employees serving 100,000 customers in partnership with brands like Nike (NYSE:NKE) and Under Armor (NYSE:UA)
While local budgets could be under strain, Memphis, Tennessee-based Varsity Brands has brought payments and crowdfunding functions under its umbrella. About 40,000 school programs have used its Fan Cloth subsidiary to crowdfund for uniforms or other merchandise and this tool could be expanded to other payments functions with fintech takes up for grabs.
Bain bought it out in 2018 for $2.9 billion including debt and at the time thought it could be a good IPO candidate, but the pandemic likely shifted things to Plan B. For investors in the current market climate, Varsity could be an intriguing place to stash cash with footholds that have post-pandemic upside as well as stable supply contracts at a time when other consumer brands may be under pressure.
It could well be in the sights of Iconic Sports (NYSE:ICNC), which listed in October 2021 with the goal of taking advantage of the market dislocation in the organized sports market to combine with a company with strong fundamentals.
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