Outdoor and Active Lifestyle M&A Market: Three Buyer Priorities

Key Takeaways

  • Accelerating interest in outdoor recreation is spurring resilient growth in the large outdoor lifestyle market.
  • As the economy begins to show signs of recovery, buyers in the space are putting M&A back on the agenda.
  • Companies with strengths in digital capabilities, inventory management, and brand affinity among committed enthusiasts will command a premium in the marketplace.

Despite economic volatility and short-term uncertainty due to the pandemic, the outdoor and active lifestyle industry is seeing an increase in consumer enthusiasm. Consumers have flocked to the outdoors across a number of sectors as it has become more evident that most individualized and small group outdoor pursuits can be safely enjoyed.

Here, Ryan Budlong and Corey Benjamin, both managing directors, and Chris Neils, a vice president, all from the Harris Williams Consumer Group, share their thoughts on why the outdoor and active lifestyle sector is primed for M&A in the months to come, and what buyers will be looking for as they pursue new opportunities.

An Enthusiastic Market

As the Northern Hemisphere extends into the summer months and more and more Americans feel safe outside the home, growth in outdoor recreation, not surprisingly, is accelerating. According to a March 2020 survey by CivicScience, nearly half (43%) of Americans planned to do more outdoor activities amid social distancing rules. Hiking, visits to parks, water activities, and trips to national and state parks were all expected to increase, with growth ranging from 6% to 15% per activity over pre-COVID-19 rates. This increase in outdoor endeavors skews more to the younger generations, where nearly half of Gen Zs and millennials have stated that they will spend more time outside.

There are also certain categories within the large outdoor recreation market that possess recession-resilient characteristics. The hunting and fishing sector, for example, is largely recession agnostic, and has even shown signs of growth during prior recessionary environments. As noted in Figure 1, below, boating certificates increased in 2009, while hunting licenses remained relatively flat, which should be considered a significant “win” in light of the economic conditions in 2009. It is also estimated that between 43 million and 45 million hunting or fishing licenses are sold each year in the U.S., representing a highly predictable and steady market.1 Amid the current economic environment, we anticipate similar signs of positivity across the hunting and fishing sector heading into the back end of 2020 and into 2021.

Figure 1: Boating certifications and hunting licenses largely unaffected by Great Recession

hw-outdoorandactivelifestylegraph-0701v2.pngSource: NASBLA, U.S. Fish and Wildlife Service

The bicycle industry is also one of multiple segments showing tremendous growth amid COVID-19. In March 2020, nationwide sales of bicycles, equipment, and repair services nearly doubled compared with the same period last year, according to the NPD Group, a market research company. This aggressive growth continued in April, with cycling sales reaching $1 billion in a single month. Sales for traditional and indoor bikes, parts, helmets, and other accessories grew a combined 75% compared to the same period last year.2 “As commuters rethink their modes of transportation and communities reassess commuting infrastructure, we expect the rise in demand for bikes to continue,” says Budlong. “It may be some time before people are able to, or will, use their historical transit methods.

Active Interest in Outdoor and Active Lifestyle M&A

Bolstered by strong pockets of performance and a positive consumer sentiment in the sector, strategic and financial buyers are beginning to target M&A as they emerge from pandemic restrictions and look for areas of opportunity to gain share in the growing outdoor and active lifestyle market.

During a recent earnings call, Scott Roe, executive vice president and CFO at VF Corporation, said M&A remains a top strategy: “As it relates to potential acquisitions, we continue to actively assess strategic opportunities and believe the disruption caused by COVID could lead to an increase in M&A activity and the availability of attractive assets. M&A remains our top capital allocation and strategic priority on a medium to long-term basis. The disruption underway across our sector will undoubtedly provide ample opportunities for strong companies with demonstrated M&A capabilities to create significant shareholder value through inorganic growth.”3

John Walbrecht, president of Clarus Corporation, which owns the Black Diamond brand, among others, reinforced the company’s interest in M&A in their most recent earnings call: “We regularly evaluate opportunities to acquire similar super-fan brands to complement our portfolio and where we can deploy our unique innovation [capabilities] and accelerate brand strategy. While we will be sensitive to the market and economic environment as well as our leverage, we expect to target acquisitions over the long term that provide access to new product groups and consumer channels or can diversify us within the outdoor and consumer markets.”4

Benjamin and Neils point to Vuori as a great example of the attractive investment opportunity in the active lifestyle space. In August 2019, Norwest Venture Partners (NVP) invested in this high-growth, predominantly direct-to-consumer, West Coast-inspired apparel brand for men and women. “Vuori has experienced rapid growth since it launched in 2015,” says Neils. “It was a great fit for NVP, aligning well with their strategy of investing in proven direct-to-consumer and omni-channel brands.”  

Benjamin adds that activewear concepts like Vuori are especially well-positioned. “The brand is focused on quality and performance, and has a unique ability to target both men and women. Vuori has gained traction in the current environment, continuing to build brand authenticity and community by delivering helpful content, including influencer-led workouts.” Benjamin says Vuori is a great example of the types of businesses buyers are likely to target as the M&A market sees a resurgence in deal activity. 

Three Strengths That Make a Difference

What are buyers in the outdoor lifestyle space hoping to achieve via M&A? Beyond the evergreen goal of supplementing organic growth, CEOs in the space have recently expressed, now more than ever, their desire to enhance internal digital capabilities, streamline inventory management, and cultivate strong brand affinity among committed enthusiasts. M&A is a proven way to quickly gain new capabilities in each of these areas, and we expect both private and portfolio companies with these respective strengths to command a premium in the marketplace.

Superior Digital Capabilities

Buyers are searching for ways to boost their digital and direct-to-consumer capabilities. Why? That’s where the growth is, especially amid the COVID-19 pandemic. VF Corp. saw double-digit growth in their digital business for The North Face, Vans, and Dickies on a global basis for the fourth quarter of 2020. The VF Corp. leadership team stated on their May 15, 2020, earnings call that the company’s top priority is to accelerate its hyper-digital transformation, and that digital will be even more central to VF’s growth and success. Fiscal 2021 investments in digital transformation will account for ~80% of all planned strategic investment for VF Corp.’s fiscal year.

“As consumers adapt to lifting COVID-19 restrictions, e-commerce will continue to see growth,” says Budlong. “Consumers have been forced to shop online the last several months, and despite retail beginning to open, we don’t expect to see the average consumer racing into the store for their purchases.”

Columbia’s U.S. e-commerce business was up more than 60% year over year through the first several weeks of April, and Tim Boyle, chairman, CEO and president of Columbia, said on the company’s most recent earnings call that “the single biggest investment we’re making in 2020 is on improving and enhancing our digital capability, specifically as it relates to e-commerce.”5

YETI pivoted its brand, marketing, and product launches to a fully digital platform in March and has seen a powerful digital engagement and meaningful connections with customers. Says Matthew Reintjes, president and CEO of YETI, “On social and YETI.com, we introduced a free YETI streaming service of actual streams to offer serenity and levity during a chaotic time, plus to provide a small taste of the outdoors to our fans while we’re all stuck inside.”6 Reintjes says this digital effort has resulted in triple-digit growth in YETI’s e-commerce business.

Expertise in Inventory Management

COVID-19 and associated shutdowns shifted the focus of many retailers to cash and liquidity concerns. “As businesses begin to reopen, optimizing inventory utilization and matching anticipated demand will be both challenging and critical,” says Budlong. “Assets with a clear plan for inventory management will have the advantage.”

Columbia, for example, considers its outlet stores as integral to its inventory optimization. The company will utilize this channel, while also taking a multi-season approach to orders with retailers. CEO Boyle commented, “We have been proactively working with our retail partners to build a comprehensive view of orders, inventory, and demand to take a holistic multi-season approach to optimizing inventory levels.”7

Inventory management is on the agenda for VF Corp. as well. Steve Rendle, chairman, president, and CEO, recently commented that “in some cases, we’re looking at holding inventory and building assortments and reducing forward buys. This is also where our outlets really come into play. We reduce our forward buys for outlets and use the goods that we have on hand from a merchandising standpoint.”8

Strong Affinity with Enthusiasts

In recessionary times, companies serving fiercely loyal and dedicated customers tend to come out ahead. Johnson Outdoors, for example, has strong customer loyalty for many of its brands, translating into more selling opportunities. Helen Johnson-Leipold, Johnson Outdoors chairman and CEO, stated: “We have a very avid core group of fishermen, and they’re a little bit on the obsessive-compulsive side of things, and so they are very dedicated to the season. We have people who may or may not buy into boats, but if they don’t buy a boat, they will trade in their motor and get a better motor. So we could be either an accessory item or we get involved in a new boat purchase.”9

Reintjes reflects, “YETI, during the last recession, was in growth mode and was a much smaller business than it is today. But as we think about disruptions we’ve seen and we think about the last 8 to 10 weeks and how the business has performed, what we have really liked about what we’ve seen is that our products and our brand remains in demand.”10

Conclusion

The outdoor and active lifestyle sector is poised for strong growth and will be ripe for M&A opportunity as the world reopens. There is a tremendous amount of pent-up demand for goods and services related to outdoor activities. This, paired with a general focus on improving overall health and the recent rise in participation in outdoor activity, signals an industry likely to see continued growth. Those companies with a strong brand among loyalists, advanced digital capabilities, and efficient inventory management will be highly attractive as buyers look for pockets of opportunity across this robust sector.


Published July 2020

Sources:
1. U.S. Fish and Wildlife Service
2. The NPD Group/ U.S. Retail Tracking Service/ April 2020 vs. April 2019
3. VF Corporation’s Q4 2020 earnings call on May 15, 2020
4. Clarus Corporation’s Q1 2020 earnings call on May 11, 2020
5. Columbia Sportswear’s Q1 2020 earnings call on April 30, 2020
6. YETI Holding’s Q1 2020 earnings call on May 7, 2020
7. Columbia Sportswear’s Q1 2020 earnings call on April 30, 2020
8. VF Corporation’s Q4 2020 earnings call on May 15, 2020
9. Johnson Outdoors’ Q2 2020 earnings call on May 5, 2020
10. YETI Holding’s Q1 2020 earnings call on May 7, 2020
 

Investment banking services are provided by Harris Williams LLC (“Harris Williams”). Harris Williams is a registered broker-dealer and member of FINRA and SIPC. Harris Williams & Co. Ltd is a private limited company incorporated under English law with its registered office at 8th Floor, 20 Farringdon Street, London EC4A 4AB, UK, registered with the Registrar of Companies for England and Wales (registration number 07078852). Harris Williams & Co. Ltd is authorized and regulated by the Financial Conduct Authority. Harris Williams & Co. Corporate Finance Advisors GmbH is registered in the commercial register of the local court of Frankfurt am Main, Germany, under HRB 107540. The registered address is Bockenheimer Landstrasse 33-35, 60325 Frankfurt am Main, Germany (email address: hwgermany@harriswilliams.com). Geschäftsführer/Directors: Jeffery H. Perkins, Paul Poggi. (VAT No. DE321666994). Harris Williams is a trade name under which Harris Williams LLC, Harris Williams & Co. Ltd and Harris Williams & Co. Corporate Finance Advisors GmbH conduct business.

The information and views contained in this presentation have been prepared in part by Harris Williams. Harris Williams is a subsidiary of PNC Bank, National Association (“PNC”), and this presentation also contains information and views provided by PNC. This presentation does not purport to be comprehensive or to contain all the information that a recipient may need in order to evaluate any investment or potential transaction. This presentation is not a research report, as such term is defined by applicable law and regulations, and is provided for informational purposes only. Any and all information, including estimates, projections and other forward-looking statements, presented in this document may involve various assumptions and significant elements of subjective judgment and analysis which may or may not be correct. Harris Williams has not independently verified, and neither Harris Williams nor any other person will independently verify, any of the information, estimates, projections or forward-looking statements contained herein or the assumptions on which they are based. The information contained in this document is made as of the date hereof unless stated otherwise. Harris Williams does not expect to update or otherwise revise this document nor provide any additional information, nor correct any inaccuracies herein which may become apparent.

The information contained herein is believed by Harris Williams to be reliable but Harris Williams makes no representation or warranty as to the accuracy or completeness of such information, and information contained herein that is based on material prepared by others may involve significant elements of subjective judgment and analysis which may or may not be correct. Opinions, estimates and projections in this presentation constitute Harris Williams’ judgment and are subject to change without notice.

This presentation is not to be construed as an offer to buy or sell or a solicitation of an offer to buy or sell any financial instruments or to participate in any particular transaction, nor shall this presentation form the basis of any contract. It does not constitute and should not be construed as an endorsement or recommendation of any entities’ products or services.

No part of this material may be copied or duplicated in any form or by any means, or redistributed, without Harris Williams’ prior written consent.