The Quiles brothers, who founded Kelme in 1977, have given up on the ownership of the popular Spanish sports footwear brand after more than a year of negotiations, ending up in a session of 27 hours in the office of a notary public to draft and sign the final contracts. A private equity fund has taken over a nice brand run by a good management team, led by a former top manager of Adidas, that will have to work a lot to regain the confidence of suppliers and customers.
Kelme had a net loss of €7 million in 2005 on a 5.6 percent drop in sales to €28.6 million. It went into bankruptcy proceedings in November 2006. It was facing a possible liquidation lately because of debt that reached €63 million at the end of March, requiring interest payments of €15,000 a day. Due to lack of cash needed to finance the production, the company was unable to honor all its orders because it could not pay its suppliers, so its revenues dropped dramatically last year to €10.7 million from €30 million in 2006. The banks agreed last Apr. 17 to reopen their credit lines to allow it to operate normally.
Tirant, a private investment fund of Riva y García Private Equity, has invested €9.8 million to take over the Kelme brand and other selected assets of Incadesa, the holding company of the Quiles brothers, to the exclusion of a large piece of real estate that will be used to pay off a large portion of the debt. It has acquired Kelme’s office, its factory and its warehouse in Elche. Tirant’s total investment in Kelme approached €30 million as the fund has also agreed to take over all of Kelme’s operating debts toward its employees, its suppliers and public authorities.
Tirant had originally agreed to pay €6 million for the takeover of the Kelme assets, on the condition that the Quiles brother would sell 1.8 million square meters of land owned by Incadesa near Alicante to reduce the company’s debt. The land was being used as a guarantee for the company’s bank loans. Diego Quiles, former president and founder of the company, approved Tirant’s proposals in June last year, but his younger brother, José, and their sister disagreed.
They blocked the transaction partly because the property is in a protected natural area that could not be sold. Public authorities have agreed to exchange two-thirds of the total surface of the land for a surface of the same value in an urban development area. The brothers will now share ownership of the land with Tirant and three banks that have converted their loans into shares within Incadesa. Diego and José will also get cash payments of €3 million and €4.2 million, respectively.
Tirant has formed a new full-owned holding company, New Milenium Sports, to take over the remaining Kelme assets. Benjamin Clarí, who acted as president of Adidas in Spain between 2001 and 2005 and has run the Kelme brand since its bankruptcy, will act as president and managing director of New Milenium Sports, with a small minority stake in Kelme.
Clari hesitates to predict Kelme’s future turnover, but he wants it to reach break-even results by next year. He has already cut costs considerably, retaining only 94 employees, and raised the gross margin. He sees the strongest potential for growth in foreign markets, which currently represent only 20 percent of revenues, and in an extension of the product line.
Banking on patented technologies such as the application of a special waterproof membrane on some its football boots, Clari wants Kelme to be perceived as an innovative brand, with exclusive designs. The design team is led by Francis Moleon, a former product manager of Carolina Herrera who joined Kelme in May 2007.
The company has developed a specific range of football boots for women and a limited edition of waterproof football boots in shark skin, with kangaroo leather in the heel with silver threads, retailing for €500 a pair. Some production will continue to take place at the company’s factory, which is now making about 1,400 pairs per day, to continue the brand’s "hand-made in Spain" reputation.
Kelme is strongly tied to Spain’s national sport identity. Apart from having had a successful cycling team named after it for 27 years, the brand sponsored the Real Madrid team in the 1990s and the entire national Spanish Olympic team in the 1992 Barcelona Olympic Games. Its focus has essentially been football, running and trekking, but it is now planning to diversify into golf, basketball, fitness, cycling and swimming, while expanding its casual footwear offerings. Its current product range includes a wide range of sports shoes for indoor and outdoor football, walking, mountaineering and running, in addition to casual and children’s styles.
