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Industry Insight

MOSS ADAMS CAPITAL: Apparel and foowear market monitor highlights notable deals, stock prices and results.

Details on Industry Insight.

Tiffany Montgomery
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Kummetz: PPR deal good for industry

By Tiffany Montgomery
May 02, 2011 2:00 PM

Mitch Kummetz is a long-time and respected industry analyst who works for Robert W. Baird & Co.


I asked him for his thoughts on the PPR acquisition of Volcom.


Mitch said it remains to be seen if this is a good move for Volcom. It depends on what PPR does with the brand, he said. It definitely helps Volcom have the capital and resources to more aggressively grow its business, and can help Volcom reach its global potential more quickly.


“Whether that’s good for Volcom or the industry we’ll have to see.”


With PPR’s backing, Volcom will likely reach and maybe even exceed its target of $550 million in revenue by 2014 more quickly.


However, you never know what an acquiring company might do to an organization or brand as it tries to achieve its own financial goals, he said.


Now that another acquisition has taken place in the industry, I asked Mitch what he thinks the impact could be on smaller, independent brands that don’t have the same kind of muscle behind them.


He said it really depends on what level the brands are trying to compete at.


Smaller brands can still do a good job supplying the smaller shops and even a large account like Zumiez, which is focused on carrying brands that aren’t carried everywhere else.


With sourcing, however, brands that are part of large conglomerates have much more leverage on the supply chain side of the business.


I also asked Mitch about the intangibles. How will Volcom with its unique perspective and independent-minded management team handle being part of and reporting to not only a large conglomerate, but people from outside the industry?


PPR is acquiring Volcom for a reason, Mitch said. It’s one of the strongest if not the strongest brand in the industry. Ideally in these deals a company will try to keep the front end separate and autonomous and leverage the back end of the business.


Where his kind of acquisition can run into trouble, however, is when the acquired company does not hit its financial targets and then the bigger company thinks it can do things better and starts to meddle.


It’s also unclear what kind of employment agreements for Volcom’s top managers are baked into the acquisition deal. (On a conference call today, PPR CEO Francois-Henri Pinault said Richard Woolcott does not have an earn out, but was not asked about employment agreements.)


As far as the $24.50 per share price, Mitch said it’s a pretty fair near term valuation. However, if you consider Volcom’s plan to get to $550 million by 2014, then PPR may be underpaying, he said.


Mitch sees this entry of a major player like PPR into the action sports industry as a confirmation of the desirability of the industry. Even though the industry has had a tough time the past few years, a lot of outside companies still want a piece of it and realize it’s a hard market to crack.


“(Outside companies) realize it’s almost impossible to enter with your own brand or a sub-brand,” he said. “It’s an attractive space and a lot of companies want to participate. It’s a real validation of the action sports market.”



More on: Volcom, Mitch Kummetz, PPR

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