Opinion

Last updated: 13th Jun 2011

The tug of war for Jack Wolfskin lasted longer than expected. Rumours first emerged that it was up for sale started in the summer 2010. About 9 months later, just before Easter 2011, the owners Quadriga Capital and Barclays Private Equity announced the end of sales negotiations.

Prior to that, purchase price claims of about €800m were reported in the media. The purchase price touted in the press proved highly ambitious – translating to about 2.6-times the €304m turnover, considerably above the standard ‘multiples’ in the consumer/ sports industry.

It should be noted too that in 2005 the current owners had acquired Jack Wolfskin for about €95m from Bain Capital when turnover was around €80m

Ostensibly, the official reason for the termination of the negotiations was that Jack Wolfskin was developing even better than expected. The current owners therefore decided to further grow the company on their own – especially overseas where they saw the most potential-.

Of course what really happened was that no potential buyer was willing to meet the price expectations of Jack Wolfskin.

How did this happen? From a corporate finance perspective the timing of the sale was excellent: The product range of Wolfskin had been continuously expanding and the brand itself has been experiencing a boost in popularity, especially in Germany.

In 2010 Jack Wolfskin recorded double-digit growth rates (+21%) for the seventh year in a row. Additionally, further steps towards internationalisation were made as their attempts to penetrate the UK and Chinese markets demonstrated. In 2010 Jack Wolfskin’s growth abroad exceeded domestic expansion for the first time.

Consequently, it seemed like a bidding-race for Jack Wolfskin was unfolding. However, Puma and Adidas were - in contrast to initial industry news - not interested, presumably in some part due to the high price expectation. Financial investors like Blackstone and BC Partners were interested however, their interest proved fleeting. Trading companies like Otto participated in the race as well as the Tchibo-heir Herz, via his investment company Mayfair. The US fashion conglomerate VF Corp was likewise rumoured as prospective buyer but repeatedly denied any involvement.

Other variables were likely at play besides the ambitious purchase price. Let’s take for example the supply chain: Realisation about the current shortage of production capacities coupled with rising procurement costs, with regards to wages and raw material price increases in South-East-Asia and China, could have thrown a spanner into the works during the transaction. Financial investors may have also been concerned about the mid-term growth and margin planning of Jack Wolfskin in general.

Any major push into new geographical markets would have needed considerable investment. Moreover, investments in logistics, such as the fact that expansion necessitated sustaining the current growth rates, could have played an important role.
The general sentiment among industry experts that the Jack Wolfskin brand itself had been diluted due to the sudden influx of similar brands. Last but not least the management issue: Could they go along with the concepts of another party?

When will Jack Wolfskin be up for sale again? A new, broad sales process within the next two years would come as a surprise. ‘One-to-one’-situations in which the current owners – after a certain grace period – negotiate exclusively with an interested party may be possible.

Otto’s Chief Executive, Hans-Otto Schrader for example is still generally interested in Jack Wolfskin as he stated in an interview with Reuters: ‘Jack Wolfskin would be a good fit for us in regards to products and its target group’, he explains. Indeed, Otto has been trying to attract new demographics by repositioning itself as a multi-channel-retailer, using its popular catalogue as foundation. The strengthening of stationary trading is a stated goal. In our opinion the interest of Otto is an interesting indication of the current positioning of Jack Wolfskin – somewhere between outdoor and fashion, retail and pure brand management.

The recent decision by Karstadt-owner Nicolas Berggruen to divide the company into three parts – sports, premium and warehousing – may eventually play a role. Who knows, perhaps one day Otto – through their subsidiary SportScheck - will start making moves to acquire various Karstadt Sport sites as well as the Jack Wolfskin brand.

Robert Kraska
Director
C.H.Reynolds