Signa Sports United (SSU), the big international sports e-tailer based in Berlin, has entered into a business combination agreement with Yucaipa Acquisition Corporation, a publicly-traded special purpose acquisition company (SPAC) based in Los Angeles, to finance the acquisition of Wiggle Chain Reaction Cycle, alias Wiggle CRC, a big U.K.-based bike online retailer with annual sales of around $500 million, and to get a listing on the New York Stock Exchange in about three months’ time.

The combined entity will have an enterprise value of around $3.2 billion, equal to 1.6 times projected revenues for the financial year ending in September 2022. It aims to double its annual revenues for the current year to around $3.7 billion by 2025, partly through new acquisitions and international expansion, especially in the U.S. and Asia. A couple of acquisitions that are already in the pipeline would add around $400 million in annual sales. SSU wants to continue to grow at annual rate of 25 percent against a previously projected annual growth in online sports retailing of 13 percent.

 

After the acquisition of Wiggle, SSU will be the largest pure-play sports e-commerce and technology platform company in the world, with expected pro-forma revenues projected at about $1,621 million and adjusted Ebitda of $70 million for the financial year ending in September 2021. In addition to Wiggle, which is also involved in the running, fitness, outdoor and swimming segments, the pro forma revenues would include those of two American players in the racquet sports segment - Midwest Sports (deal closed on Apr. 30à and Tennis Express (deal closing in Q4) - that are being acquired by SSU’s internet platform for the sale of racquet sports products, Tennis-Point.

The company that will emerge from the transaction describes itself as a the only “sports vertical category killer” in online sports retailing, with unique capabilities and a fully scalable business model based on data analytics. The combined business will have this year over seven million active customers, 1,000+ brand partners, 500+ connected retail stores, and more than 15 million sports community users globally connected with digital sports apps, wearables and trackers. SSU points out that two thirds of the products it offers on its multiple websites are not available on Amazon, making it a unique destination for sports enthusiasts who have been shopping increasingly online.

SSU spent 7 percent of sales on targeted marketing last year, including for example a campaign associating Serena Williams with Wilson and Tennis-Point. The number of active customers grew by 28 percent last year, and the customer retention rate for the previous three years’ cohorts grew to 96 percent.

A webcast presentation made to analysts indicated that the connected retail business is expected to grow from about one percent to 25 percent of the turnover by fiscal 2025 with over 2,000 retail partners in Europe, contributing an Ebitda margin of more than 20 percent.

SSU will already be the leader this year in online sales of bicycles and racquet sports products – two segments that will contribute 63 percent and 17 percent of its turnover, respectively. Outdoor and team sports will represent 13 percent and 7 percent of sales. Europe will remain the largest market with 67 percent of the turnover, followed by the U.K. with a share of 19 percent – thanks largely to Wiggle - and the U.S. with 9 percent.

Adding acquisitions in the pipeline, SSU would have generated sales of around $230 million in racquet sports in the past year, when the group delivered over 100,000 stringed racquets to some 350,000 users, among other products. It also shipped 300,000 fully assembled bikes, 30 percent of which were sold under its own brands. Adding Wiggle, which gets about half of its turnover from U.K. customers, its sales in this segment would have reached $880 million in the past year, playing an increasingly important role in the booming e-bike segment. Sales of outdoor products amounted to $220 million last year, and team sports half as much.

Operating in four online main categories - bike, tennis, outdoor and team sports - SSU has pursued an ambitious growth strategy under the management of Stephan Zoll. The company’s track record shows organic growth of 27 percent annually over the three years ending next September through its numerous websites, including also Fahrrad.de, Bikester, Probikeshop, Campz, Addnature and Outfitter.

Over the 6-month period ended March 31, 2021, which was marked by the Covid-19 pandemic, the company’s largest segments, bike and outdoor, achieved a gross margin of 40 percent an Ebitda margin of more than 10 percent on a growth of more than 40 percent in revenues in SSU’s core markets of Germany, Austria and Switzerland. The growth rate reached 60 percent in the rest of Europe.

Excluding Wiggle, SSU would generate this year Ebitda of $3.7 billion on projected revenues of $1,030 million, up from $849 million in the past financial year and $644 million in the previous one. The business plan calls for the Ebitda margin to grow from 2.2 percent last year to 4.3 percent this year and between 12 and 15 percent by 2025.

SSU is controlled by the Austrian Signa Holding group, which owns separately the Karstadt Sports and SportScheck sports retail chains in Germany. Other shareholders are AEON, the Central Group, the A+V insurance group and members of SSU’s management.

Wiggle is controlled by Bridgepoint Capital, which would receive part of the proceeds for its sale through a stake in the new entity. Wiggle has reportedly been losing money in recent years. It claims to be the second-largest online retailer of bicycles in the world, although it sold back two years ago a German online operation, Bike 24, to its former owner, The Riverside Company. As reported a few days ago, Bike 24 is now planning to go public on the Frankfurt Stock Exchange later this year.

Yucaipa is part of a 35-year-old investment company chaired by Ron Burkle that has been involved in mergers and acquisitions worth $40 billion. It says it evaluated more than 75 other investment opportunities since last August before it decided to work with SSU.

In the transaction announced on June 11, the Yucaipa SPAC will contribute about $345 million to gross proceeds of around $645 million to finance its merger with SSU. Other institutional investors and sovereign funds anchored by Burkle will contribute $300 milllion. Burkle himself will make a personal investment of $50 million. All the present shareholders of SSU will roll over their stakes into the new company before it goes public.

After the merger, SSU will have a stake of 73.6 percent, the SPAC 10.3 percent and Wiggle’s current shareholders 4.2 percent. We could not determine how much of the equity will be floated on the NYSE and whether Signa’s stake will then be diluted to below 50 percent, but we doubt it. The Signa group, which is also involved in real estate, is controlled by a young Austrian entrepreneur, René Benko.

Rumors about the acquisition of Wiggle and a possible IPO were circulated by Reuters a couple of months ago, citing Citigroup as one of the banks involved in the process. The rumors coincided with an announcement by SSU about the appointment of five new high-caliber executives to its management team to help take the group to the next level.