Mercury Athletic Footwear: Valuing the Opportunity
4050
SEPTEMBER 18, 2009
TIMOTHY A. LUEHRMAN
JOEL L. HEILPRIN
Mercury Athletic Footwear:
Valuing the Opportunity
In March 2007, John Liedtke, the head of business development for Active Gear, Inc., a privately held footwear company, was contemplating an acquisition opportunity. West Coast Fashions, Inc.
(WCF), a large designer and marketer of men’s and women’s branded apparel had recently announced plans for a strategic reorganization. The plan called for a divestiture of certain non-core assets and a renewed focus on WCF’s higher-end business, business-casual, and formal-wear apparel businesses. One of the divisions WCF intended to shed was Mercury Athletic, its footwear division.
Liedtke knew that acquiring Mercury would roughly double Active Gear’s revenue, increase its leverage with contract manufacturers, and expand its presence with key retailers and distributors.
He also expected that Active Gear’s bankers would quickly approach the company about a possible bid for Mercury; consequently, he wanted to complete his own rough evaluation of the opportunity before hearing the bankers’ pitch.
Athletic and Casual Footwear Industry
Footwear was a mature, highly competitive industry marked by low growth, but fairly stable profit margins. Despite the industry’s overall stability, the performance of individual firms could be quite volatile as they vied with one another to anticipate and exploit fashion trends. The market for athletic and casual shoes remained fragmented, despite the presence of a small number of global footwear brands. In the casual segment, companies competed on the basis of style, price, and general quality. In the athletic segment, competition revolved around brand image, specialized engineering for performance, and price.
Within the fashion-sensitive part of the industry, product lifecycles tended to be short, sometimes lasting only a season. Consequently, active management of inventory and production lead times
were
SEPTEMBER 18, 2009
TIMOTHY A. LUEHRMAN
JOEL L. HEILPRIN
Mercury Athletic Footwear:
Valuing the Opportunity
In March 2007, John Liedtke, the head of business development for Active Gear, Inc., a privately held footwear company, was contemplating an acquisition opportunity. West Coast Fashions, Inc.
(WCF), a large designer and marketer of men’s and women’s branded apparel had recently announced plans for a strategic reorganization. The plan called for a divestiture of certain non-core assets and a renewed focus on WCF’s higher-end business, business-casual, and formal-wear apparel businesses. One of the divisions WCF intended to shed was Mercury Athletic, its footwear division.
Liedtke knew that acquiring Mercury would roughly double Active Gear’s revenue, increase its leverage with contract manufacturers, and expand its presence with key retailers and distributors.
He also expected that Active Gear’s bankers would quickly approach the company about a possible bid for Mercury; consequently, he wanted to complete his own rough evaluation of the opportunity before hearing the bankers’ pitch.
Athletic and Casual Footwear Industry
Footwear was a mature, highly competitive industry marked by low growth, but fairly stable profit margins. Despite the industry’s overall stability, the performance of individual firms could be quite volatile as they vied with one another to anticipate and exploit fashion trends. The market for athletic and casual shoes remained fragmented, despite the presence of a small number of global footwear brands. In the casual segment, companies competed on the basis of style, price, and general quality. In the athletic segment, competition revolved around brand image, specialized engineering for performance, and price.
Within the fashion-sensitive part of the industry, product lifecycles tended to be short, sometimes lasting only a season. Consequently, active management of inventory and production lead times
were