Adidas announced on Aug. 12 that it has entered into a definitive agreement to sell Reebok to the Authentic Brands Group (ABG) for a total of up to €2.1 billion. The majority will be paid in cash at the time of closing, which is expected to occur in the first quarter of 2022, after approval of the transaction by regulatory authorities. Adidas said it plans to return most of the cash proceeds to its own shareholders. The balance of the payment will be deferred, subject to certain considerations.

Jamie Salter, founder, chairman and CEO of ABG, said his group is “committed to preserving Reebok’s integrity, innovation, and values - including its presence in bricks and mortar.” The statement is important, as ABG tends to license out the operations of certain brands after their takeover. It was reportedly planning to share the management of Reebok with Wolverine Worldwide, which subsequently preferred to fully acquire Sweaty Betty.

ABG was recently reported to be contemplating a public offering worth $1.5 billion, which would liberate additional resources to finance Reebok’s acquisition. Without elaborating, Adidas’ announcement indicates that three private equity partners - BlackRock, General Atlantic and Leonard Green & Partners – “played an instrumental role in the partnership” with ABG. Leonard Green was the controlling shareholder in ABG when the group was formed by Salter in 2010, and BlackRock took over its control in August 2019.

The price that ABG has agreed to pay is much higher than a previous circulated figure of around €1 billion, and this probably helped Adidas to record an increase of about 2 percent in its share price on the day. Adidas bought Reebok in 2006 for $3.8 billion, partly to help capture a larger share of the important U.S. market. At that time, the acquisition included the Rockport, CCM Hockey and Greg Norman brands, which were subsequently divested for a total of €0.4 billion. ABG took control of Greg Norman in 2017. Adidas has since written off part of its investment in Reebok, reducing its goodwill to just over €800 million.

After suffering losses, Reebok initiated five years ago a turnaround plan called “Muscle Up,” under which the brand managed to significantly improve its growth and profitability prospects, according to Adidas. In reporting its second-quarter results from continuing operations, which exclude Reebok, Adidas said a few days ago that the brand raised its profitability strongly on sales that were 93 percent higher than in the second quarter of 2020 and 13 percent higher than in the corresponding period of 2019.

Because of Covid, Reebok’s sales declined by 16.1 percent on a currency-neutral basis in 2020, down to €1,748 million. This past spring, Adidas told the candidates for Reebok’s acquisition that the brand was in line to book annual growth of 10 percent, leading the brand to generate Ebitda of at least €200 million by 2025, according to Reuters.

ABG has been rapidly expanding in the last few years in the sports, fashion, lifestyle and retail sectors. Its portfolio of brands includes Airwalk, Prince, Spyder, Tretorn and Volcom., among many others.

Reportedly, a shortlist of potential candidates for Reebok’s acquisition drawn up by Adidas its advisors a few weeks ago included mostly four institutional investors, in addition to the ABG-Wolverine tandem: Advent International, CVC Capital Partners, Sycamore Partners and Cerberus Capital Management.

J.P. Morgan acted as exclusive financial advisor to Adidas in the transaction with ABG, and Hengeler Mueller as legal counsel. BofA Securities and Goldman Sachs & Co. served as financial, strategic and M&A advisors, while also providing committed financing. KPMG International served as accounting and due diligence advisor for ABG, and Latham & Watkins as its legal counsel.