The planned transaction, expected to close in the first quarter of 2022, isn’t Crocs‘ first deal, but it is its largest to date. Executives at the company believe the move is in-line with current consumer trends.
“With the acquisition of Heydude, we are thrilled to add another high-growth, highly profitable brand to our portfolio,” Andrew Rees, Crocs’ CEO, said. “We believe Heydude’s casual, comfortable and lightweight products are aligned to long-term consumer trends and are a perfect fit for Crocs. We intend to leverage our global presence, best-in-class marketing and scale infrastructure to build upon Heydude’s strong foundation and create significant shareholder value.”
“Heydude has experienced incredible growth in revenue and profits over the past few years. Heydude is expected to be immediately accretive to our high revenue growth, industry-leading operating margins and earnings. We expect the combined business to generate significant free cash flow, enabling us to quickly deleverage while investing to support future growth. We are excited about the combination and are confident in our ability to deliver long-term shareholder value,” Anne Mehlman, Crocs’ executive vice president and chief financial officer, added.
The acquisition will further diversify Crocs out of clogs and into other casual styles such as sandals, boat shoes and sneakers at middle-of-road price points in the range of $60, B. Riley Securities analyst Susan Anderson said Thursday. Based on information from management, Anderson said the transaction was valued at less than 15 times EV/EBITDA (enterprise value/earnings before interest, taxes, depreciation and amortization) and a 4.4 times sales multiple.
The B. Riley analyst also said that Heydude is expected to see $570 million in revenue in Fiscal Year 2021, while Crocs previously guided to $2.23 billion at its midpoint for Fiscal Year 2021. In addition, the casual footwear market is estimated at $125 billion, significantly higher than the $8 billion clog footwear market. The transaction would also see Crocs becoming less reliant on its clog revenues.
Heydude was founded in Italy in 2008 by Alessandro Rosano, who is also the company’s CEO. The aim of the company was to develop comfortable, versatile and accessible footwear, he said.
“We are proud of the brand we built and are honored to become a part of Crocs, a company perfectly positioned to take Heydude to the next level. We have long admired the Crocs business and are excited to have them bring Heydude’s comfort, craftsmanship and style to consumers globally,” Rosano said.
Once the deal closes, Heydude will operate as a stand-alone division. Rosano will lead product development as strategic adviser and creative director. Rick Blackshaw was hired to join Heydude as executive vice president and brand president. Blackshaw, who has over 25 years experience in footwear and has help senior level positions at Sperry, Keds and the Chuck Taylor division of Converse, will join the Crocs executive leadership team and report directly to Rees.
Crocs will fund the deal through $2.05 billion in cash and $450 million in Crocs shares issued to Rosano. The foam clog maker said it expects to enter into a $2 billion Term Loan B Facility and borrow $50 million under its existing Senior Revolving Credit Facility to fund the cash component of the deal. While the borrowing will give Crocs a 3 times leverage ratio, B. Riley’s Anderson said the company could quickly deleverage with free cash flow (FCF) going forward.
For the third quarter ended Sept. 30, Crocs said net income more than doubled to $153.5 million, or $2.42 a diluted share, on revenue growth of 73 percent to $625.9 million. During a company conference call on earnings results in October, Rees said its factories in Vietnam were operational again after shutdowns due to Covid-19. He said the company has been diversifying its manufacturing base following the outbreak in Vietnam by moving some manufacturing back to China in the short term. The clog brand also has two factories in Indonesia that it expects to come online by the end of the year.