Sporting goods retailer The Sports Authority (NYSE:TSA) has agreed to make its biggest acquisition yet: itself. Led by the company's top management, the 398-store chain will go private in a $1.3 billion transaction that will pay current shareholders $37.25 cash per stub, a 20% premium to Monday's closing price.
The sporting-goods industry has been in the midst of consolidation for the past few years, with retailers busy gobbling each other up. Aside from Dick's Sporting Goods (NYSE:DKS) and its takeover of Galyan's Trading in 2004, the private-equity firm that will most likely be taking The Sports Authority private has been at the forefront of a number of these moves. Leonard Green & Partners assisted The Sports Authority with its acquisition of Gart's Sporting Goods in 2003 and Gart's own acquisitions of Oshman's and Sportsmart before that. Green also owned Big 5 Sporting Goods (NASDAQ:BGFV) before its 2002 IPO.
Under the terms of Monday's deal, the buyer will assume the company's $378 million debt. The agreement arrives in the midst of tough times for the company, though it greatly exceeded analyst expectations in the third quarter. Those same analysts are forecasting that the company had a bleaker-than-expected fourth quarter, the results of which will be announced in March. It reported profits of $33.5 million last year on sales of $2.4 billion, but it had trailing earnings of $50 million, including last's year's robust fourth-quarter profits, on $2.5 billion in sales.
The company has kept the window of opportunity open by saying there will be a 20-day period for competing offers, to ensure that shareholders are getting the best deal. That might be enough time for a competitor such as Dick's to make a sweetened pitch. Still, it might be hard for the company to assume more debt at this point, and the offer by Leonard Green was a respectable one.
Many sporting-goods retailers are feeling the pinch from discount retail giants that also sell sporting goods. While most people purchase their sporting goods at the specialty retailers, Wal-Mart (NYSE:WMT), Target (NYSE:TGT), and department stores also provide significant competition, which keeps prices and margins low across the board. But if we look at some comparable companies, we see that The Sports Authority was feeling the pinch more than most. Its trailing-12-month ratios are some of the lowest among its peers.
Sporting-Goods Retailers' TTM Metrics
|
Gross Margin |
Operating Margin |
Revenue Growth | |
|---|---|---|---|
|
Sports Authority |
28.0% |
4.2% |
2.0% |
|
Dick's Sporting Goods |
27.8% |
6.2% |
42.8% |
|
Cabela's (NYSE:CAB) |
40.4% |
6.1% |
11.7% |
|
Hibbett Sporting Goods (NASDAQ:HIBB) |
33.1% |
11.6% |
17.9% |
|
Big 5 Sporting Goods |
36.1% |
6.6% |
7.3% |
The company says the private-equity deal will give it more "flexibility" in accomplishing its goals. (It's set to close in the second quarter, pending shareholder and regulatory approval.) Perhaps one of those goals will be to re-emerge as a new public company a few years down the road, ready to continue consolidating the field.
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Fool contributor Rich Duprey owns shares of Wal-Mart, but holds no financial position in any other company mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.
