By Jonathan Fuchs, Lolade Aluko, and Eden Yang,(LSE), Demi Akinjide, Zac Greenberg, and Ben Fobel (Bristol)
Photo: Kike Vega (Unsplash)
Overview of the deal
Acquirer: Wolverine Worldwide, Inc.
Target: Sweaty Betty
Total Transaction Size: $410 million
Closed date: August 2, 2021
Target advisor: Goldman Sachs International
Publicly-traded American footwear brand Wolverine Worldwide recently acquired a British women’s activewear brand in an all-cash $410 million offer. Though Wolverine operates one of the largest footwear and lifestyle brand portfolios, its international status has almost exclusively been focused in the footwear space, and so this transaction signals a strategic desire for Wolverine to move into other promising areas of consumer retail.
Sweaty Betty has grown to be a global brand cherished by female consumers, with impressive digital channels and its stores across the UK and Asia. Sweaty Betty’s range covers a wide array of women’s activewear and, increasingly, footwear. Wolverine’s long-established expertise and dominance in footwear will likely be key to Sweaty Betty’s growth prospects.
Wolverine Worldwide acquired all the shares of Lady of Leisure InvestCo, the entity that owns Sweaty Betty, as part of the transaction. This was acquired from private equity firm L Catterton, signaling Sweaty Betty’s new access to public capital in its future growth. This will prove important in Sweaty Betty remaining competitive against key competitor Lululemon, which is NASDAQ-traded and has begun undertaking strategic acquisitions of its own.
“The acquisition of Sweaty Betty complements our strategic shift over the last several years from a traditional footwear wholesaler into a consumer-obsessed, digital-focused growth company” - Blake W. Kruger, Wolverine Chairman and CEO
Company Details (Acquirer - Wolverine World Wide)
Wolverine World Wide is a publicly-traded American footwear manufacturer based in Rockford, Michigan. The shoemaker is known for its brand, Wolverine Boots and Shoes, as well as other brands, such as Hush Puppies and Merrell.
Founded in 1883, headquartered in Rockford, Michigan
CEO: Blake Krueger
Number of employees: 3700
Market Cap: $2.79bn (as of 11/11/2021)
EV: $3.13bn
LTM Revenue: $2.15bn
LTM EBITDA: -$16.2m
LTM EV/Revenue: 1.5x
LTM EV/EBITDA: n/a
Company Details (Target - Sweaty Betty)
Sweaty Betty is a physical and online retailer of women’s activewear, headquartered in London. Since its founding in 1998, it has expanded both domestically within the UK and internationally, with the opening of six boutiques in the United States. However, in part due to the pandemic, the company has closed all its US retail stores permanently.
Founded in 1998, headquartered in London, England
CEO: Julia Straus
Number of employees: 835
Market Cap: N.A. (privately held)
EV: £410m
LTM Revenue: £126.50 million (27 Dec 20)
LTM EBITDA: £15.79 million
LTM EV/Revenue: 3.24x
LTM EV/EBITDA: 25.97x
Projections and Assumptions
Short-term consequences
Following the acquisition, Wolverine Worldwide increased its full-year revenue forecast to a range of $2.44 billion to $2.5 billion, up from its previous expectations of $2.34 billion to $2.4 billion. The deal marks a shift in Wolverine’s strategy away from traditional footwear towards a digital-focused growth conglomerate and will allow the firm to utilise Sweaty Betty’s experience in apparel and tap into the growing market for women’s activewear. The deal will also allow Sweaty Betty to benefit from Wolverine’s existing footprint and relationships in the US, which is a key area for potential growth given the closure of all of its US stores during the pandemic and its strategic partnership with Nordstrom.
Long-term Upsides
Following the acquisition, Wolverine Worldwide increased its full-year revenue forecast to a range of $2.44 billion to $2.5 billion, up from its previous expectations of $2.34 billion to $2.4 billion. The deal marks a shift in Wolverine’s strategy away from traditional footwear towards a digital-focused growth conglomerate and will allow the firm to utilise Sweaty Betty’s experience in apparel and tap into the growing market for women’s activewear. The deal will also allow Sweaty Betty to benefit from Wolverine’s existing footprint and relationships in the US, which is a key area for potential growth given the closure of all of its US stores during the pandemic and its strategic partnership with Nordstrom. Before this acquisition, the focus of Wolverine brands has been on footwear. With the takeover of Sweaty Betty and its expertise in female activewear, we are expecting a gradual shift in strategy towards a lifestyle fashion provider. As Blake W. Krueger, Wolverine’s chairman and CEO puts it, the acquisition complements their strategic shift from a traditional footwear wholesaler to a consumer-first and digitised growth company. One of the key elements of this transition will be the development of a strong direct-to-consumer (DTC) distribution model. As of 2020, Wolverine brands’ DTC stores have grown 20% compared to 2019, while its DTC e-commerce sales have more than doubled. Moving forward, we see an acceleration in this trend and eventually a decoupling from the traditional wholesale model. If demand keeps up, sales and profit margins are likely to increase in the long run.
The downsizing of Sweaty Betty’s physical retail locations also presents synergistic opportunities, such as having the fitness brand tap on existing stores under Wolverine brands. The combination of the two brands also means that Sweaty Betty can leverage the supply chain capabilities of Wolverine brands and launch their line of footwear and other apparel to appeal to their specific target audience. With a broader line of products, Sweaty Betty will likely benefit from increased brand loyalty and emulate what Lululemon has achieved.
Risks and Uncertainties
With Sweaty Betty benefitting from a growth in athleisure as a result of the COVID pandemic boosting awareness of the importance of health and freeing up extra time, key risks are presented moving forward into a post-pandemic world. As commutes return and fewer people are left working from home, Sweaty Betty faces the possibility that sales will return to pre-pandemic levels as people have less time to exercise and have to substitute their comfortable home lounge clothing for office attire.
Wolverine has also stated its intention for the company to branch into footwear and focus its attention on the US market however with Sweaty Betty having little experience producing footwear, concerns surrounding performance in the category can be raised. In addition, Sweaty Betty’s ability to compete with US giant Lululemon, which has a market cap of $62.7 billion, is questionable given that the US is a foreign market where the firm is less well established.
“Sweaty Betty aligns perfectly with our strategic growth plan for Wolverine Worldwide, as we focus on growing digital channels, expanding our international footprint, and building our brand portfolio beyond footwear,” - Wolverine President and incoming CEO Brendan Hoffman
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