Crocs (CROX -0.33%) has been one of the market's big winners in 2021. The maker of popular clogs and sandals has reported explosive growth, and its share price has nearly doubled year to date. That's even more impressive considering that the shares have dropped by more than 30% in the last month, including Thursday morning's slide of 16.7%, as of 10:24 a.m. ET.
On Thursday, Crocs announced that it will be acquiring privately held competitor Heydude for $2.5 billion. Of that sum, $2.05 billion will be paid in cash, with the balance going to the founder of Heydude in the form of Crocs shares. The cash portion will mostly be funded from a new term loan facility, which may be one reason investors are bidding the stock lower.
Another driver of the sell-off may relate to the previously mentioned success the stock has had this year. Thursday's announcement may just have been another catalyst signaling investors to take profits.
According to Crocs CFO Anne Mehlman, Heydude -- founded in Italy in 2008 -- will be immediately accretive to the acquirer and will help increase its cash flow generation. The strong cash flow and high operating margin will help the company deleverage quickly, she said. Mehlman added that the company expects Heydude to generate long-term shareholder value, as it "has experienced incredible growth in revenue and profits over the past few years." Heydude will operate as a stand-alone division and will continue to employ founder Alessandro Rosano as its strategic advisor and creative director.
In the third-quarter earnings report Crocs delivered in late October, the company told investors that it expected revenue to grow by between 62% and 65% for this year, and another 20% in 2022. The company had cash and cash equivalents of $436.6 million on its books as of Sept. 30 -- up from just $135.8 million at the end of 2020.
This helps explain why management expects it will be able to deleverage quickly with the added cash flow from the acquisition. But some investors seem to be taking profits anyway.