Cherokee Global Brands (CGB), a U.S. company specializing in apparel sales and licensing, has agreed to take over nearly all of the assets of Hi-Tec Sports International for an aggregate purchase price of about $95.8 million from the Van Wezel family, and to transform the Dutch-based sports and outdoor footwear group into a broader licensing operation.
Ed van Wezel, Hi-Tec's chief executive and the son of Frank van Wezel, the company's founder, describes the sale as a family decision and a smart way to take more advantage of the Hi-Tec brand's potential, amid the rapid changes in the sports and outdoor retail landscape. The ongoing consolidation in the sector and the rise of online retailers with cheaper cost structures means that larger retail groups are increasingly eager to work with a smaller number of customers able to offer more enticing margins.
CGB said that, upon the closing of the transaction, it will sell substantially all assets relative to Hi-Tec's wholesale operations to new operating partners. These partners, which will be announced in the coming weeks, are meant to enter into licensing agreements with Hi-Tec Sports International Holdings BV, a subsidiary of CGB.
The U.S. buyer, which is listed on the Nasdaq stock exchange, said that the sale of these Hi-Tec assets should help to fund a share of the acquisition price. The financial arrangements for the deal further include cash on hand; a new credit facility of $50 million with Cerberus Business Finance; a receivables funding loan of $5 million to be provided by its board chairman, Jess Ravich; and a proposed public offering that is intended to yield proceeds of about $35 million. After the above asset sales and potential post-closing adjustments, CGB predicts that the purchase price for Hi-Tec's intellectual property assets to be retained by the U.S. group will be about $62.0 million. The transactions are expected to close in the current fiscal quarter, ending on Jan. 28.
CGB sells several active leisure brands such as Cherokee, Tony Hawk and Sideout, and it boasts license and franchise agreements with leading retailers and manufacturers in more than 50 countries. While unveiling its results for its third fiscal quarter, which ended on Oct. 29, CGB projected sales of about $32.0 million for the full financial year to Jan. 28, with adjusted Ebitda of about $12.5 million.
Hi-Tec's head office is to remain in Amsterdam with the management team led by Ed van Wezel, as chief executive of Hi-Tec in the CGB group. He will work with Henry Stupp, the U.S. group's chief executive, and take advantage of CGB's global partnerships and marketing resources.
Frank van Wezel, who established Hi-Tec in 1974, is to remain its chairman emeritus and ambassador for at least the next five years. Frank is also taking over Hi-Tec's subsidiary in Cape Town. This deal is paired with a licensing and distribution agreement that will enable the South African subsidiary to sell Hi-Tec's brands, from Hi-Tec to Magnum, Carrick and Interceptor, in all of Africa apart from the Mediterranean seaboard. Frank van Wezel has also agreed to purchase Hi-Tec's flagship store in Amsterdam. As previously reported, Van Wezel separately bought and relaunched Duca del Cosma, the formerly German-based golf footwear brand that filed for insolvency last year.
CGB said that Hi-Tec, recorded sales of $143 million last year, mostly from the Hi-Tec and Magnum brands, and it referred to global brand sales estimates of $288 million in 2015. The company was apparently attracted by the Hi-Tec brand and the scope of its distribution, covering 110 countries. The tie-up with CGB and its partners should also enable Hi-Tec to enlarge its business in apparel and equipment, such as backpacks.
CGB says it has secured licensing agreements for core footwear categories. It anticipates that Hi-Tec will deliver about $19 million in licensing revenues and $7 million in adjusted operating profit for the first full fiscal year after the closing of the deal.
CGB and Hi-Tec have worked out an integration plan that will be announced in the coming quarters along with its new operating partner licensees. It should then become clearer in what way the deal may affect Hi-Tec's current wholesale operations. Hi-Tec says it intends to stick with all the licensing and distribution partnerships it has forged in the last decades, and these relationships may in fact be expanded through the partnership with CGB.
CGB and Hi-Tec were in contact several years ago to consider potential licensing deals. While no such agreement materialized, the two parties remained in touch and earlier this year their discussions turned to a wider partnership. Over the last years, as Hi-Tec remained one of the few, large-scale family-owned sports footwear companies, the Van Wezels recurrently said that they weren't looking to sell, but that a takeover could always be envisaged if a judicious offer came along. The price agreed with CGB appears to fit into that category and the Van Wezels felt that they would be hard-pressed to expand the brand much further under the current structure. Hi-Tec became a public company in 1988 but Frank van Wezel decided to buy it out and turn it into a family-owned company again in 2000. The story of Hi-Tec and the Van Wezel family was detailed in our report on the 40 years of the company in 2014.