By Kari Hamanaka
with contributions from Patty Huntington
 on January 5, 2018
Billabong Boardriders

If Boardriders Inc.’s $155.5 million offer to buy rival Billabong International Inc. goes through, the deal brings a new kind of scale to the action sports industry hardly lost on the acquirer’s incoming chief executive officer.

Dave Tanner, who serves as managing director at Boardriders owner Oaktree Capital Management LP and Boardriders chief turnaround officer, will take the reins as ceo once the deal closes. Current Boardriders ceo Pierre Agnes is to serve as president. “This is a transformative acquisition to create a leading action sports platform,” Tanner said in an interview Friday.

The combined entity, with nearly $2 billion in sales, would boast roughly 10,000 employees globally with more than 630 stores and 7,000 wholesale accounts. The brand portfolio would total 11, adding Billabong darlings such as RVCA and Element to Boardriders’ Quiksilver, Roxy and DC Shoes businesses to create an industry behemoth.

The deal gives Billabong an enterprise value of $298 million and reflects a pro-forma earnings before interest, taxes, depreciation and amortization multiple of 7.4 based on the company’s fiscal-year 2017 ended in June.

Whether it helps the industry regain the footing and perhaps take back share from segments such as streetwear remains to be seen, but there is opportunity. “There’s growth there. It’s just not the boom years anymore,” Tanner said of the state of the action sports industry.

Certainly brands such as Boardriders’ DC Shoes, which was founded on being a core skate brand, has synergies with streetwear that can be leveraged more. That’s something the company’s been focused on, Tanner noted.

The executive also sees the Boardriders and Billabong brands with a competitive advantage when it comes to heritage and history that streetwear and other youth-oriented incumbents may not necessarily have or be working toward.

“Yeah, there’s a lot of street brands and there’s a lot of private label that might come in. Most of our brands have heritages of up to 50 years,” he said, adding in many cases brand founders are still at their respective companies in addition to social followings and communities off-line. “There’s a lot of connectivity there with the consumer that I’m not sure all these new brands targeting this space really have.”

There are still headwinds, not the least of which is more competition that didn’t exist when industry veterans — such as Quiksilver founder Bob McKnight or Paul Naude, the former Billabong Americas president credited with helping drive the company’s acquisition strategy and retail growth before the downturn — were growing their respective businesses.

Billabong’s had a bumpy go at a turnaround. While the Australia-based company in 2015 notched its first profit since 2011, it’s lacked consistency to call a turnaround just yet even after shedding brands such as Sector 9 and Tigerlily, among others. Tanner said additional asset sales are not being contemplated, nor does any of the firm’s financial modeling point to a need to do so.

Billabong International for the 12 months through June reported revenue of 6.7 percent, excluding the impact of exchange rates, to 974.7 million Australian dollars. The company’s net loss widened to 67.4 million Australian dollars before taxes during that same period, compared to a loss of 15.9 million Australian dollars a year earlier.

Billabong chairman Ian Pollard reminded the markets in a statement Thursday: “While Billabong has made significant operational progress in recent years, the board is also mindful of the fact that, in the absence of the [deal], Billabong shareholders face ongoing risks and uncertainties associated with the business.”

Billabong takes shelter in what is presumed to be a more stable operation in Boardriders, whose former self Quiksilver Inc. emerged from bankruptcy in 2016. It declared victory on its turnaround last year when it announced the corporate name change to Boardriders in a symbolic shedding of the past.

Boardriders, in making its offer for Billabong, believes it can take businesses with strong brand equity, recapitalize them and place them onto the Boardriders platform, Tanner said.

He went on to say one of the factors Boardriders had going for it as management looked to turn the business, was an earlier investment during the boom years on single back-end systems across all business units.

While the company’s businesses are primarily in wholesale, the combined entity would have a significant retail footprint with a mix of single- and multibrand stores accounting for roughly one-third of the overall business.

Tanner said it’s possible the Billabong brands could be added into Boardriders’ multibrand stores, but a full strategy is something to be worked out in the longer term, Tanner said.

Boardriders’ offer will go before Billabong International shareholders in March with the deal expected to close by the first half of the year.

A Billabong Group spokesperson declined to comment on the potential impact of the proposed acquisition on the group’s current turnaround strategy or the role of the group’s ceo Neil Fiske in the future business, noting it was too premature before formal shareholder and regulatory approvals, which are due by April at the earliest, he said.

The spokesperson described Boardriders’ proposal as “an extension” of the turnaround strategy, notably the latter’s “global brands on global platforms” pillar.

The proposal would enable the company to realize its vision more quickly by leveraging complementary strengths, enabling further investment in the brands and combining the group’s platform development efforts in critical areas such as digital commerce and speed to market, he said.

According to Fiske, Oaktree Capital Management will respect the heritage of the Billabong brand, which was founded by Gordon and Rena Merchant in 1973 on Queensland’s Gold Coast.

“I think what you’ll see in the coming years is much more a focus on the brands themselves and a lot less noise on changes in the action sports industry. That’s a good thing,” Fiske said.

Fiske added, “Everyone involved in this particular proposal understands the critical importance of brand heritage and authenticity — that won’t change. What would is the ability to provide greater investment and speed in building the platforms and processes to support them globally.”

Better communication between the group’s international design teams could be one key priority moving forward — with or without Fiske on board.

In August, Fiske highlighted “significant” product execution issues at brand Billabong and to a lesser extent Element and the company’s failure to keep up with trends and the new globally connected consumer as key factors, alongside difficult market conditions, in the group’s poor performance in Asia-Pacific and, notably, Australia in fiscal 2017, with same-store sales in the region falling 5 percent and revenue and earnings falling 8 percent and 28.3 percent, respectively, over the period.

The company had continued to offer the same styles that had sold well in Australia in the previous year, instead of trendier high-cut bikini bottoms and unusual colorways on offer at the U.S. division, said Fiske during an earnings call on Aug. 30.

“We played it too safe,” Fiske told analysts.