Sequential Brands Group Inc. has agreed to acquire the Gaiam yoga brand for $146 million in cash.
The agreement was signed Tuesday afternoon.
According to the terms of the transaction, Sequential will convert the business to a licensing model upon closing, which is in line with its brand-management structure in which the company becomes the owner of Gaiam’s intellectual property assets. The transaction, when closed, would be immediately accretive to Sequential’s earnings, projected to add $22 million in revenue and $20 million in adjusted earnings before interest, taxes, depreciation and amortization on a full-year run rate basis. Sequential will secure new license agreements for the brand’s core categories. The addition of the Gaiam business is expected to raise Sequential’s total guaranteed minimum royalties to more than $500 million from $360 million.
Yehuda Shmidman, Sequential’s chief executive officer, said the purchase will be made through a combination of cash on-hand and debt financing from Blackstone’s GSO Capital Partners and Bank of America Merrill Lynch.
Shmidman said the brand has strong growth potential. “There are over 38,000 points of distribution for the brand. Gaiam is a bolt-on acquisition for our active division….There are more than 35 million in America who practice yoga and more than 80 million who say they aspire to practice yoga.”
Sequential’s active division is currently anchored by its And1 and Avia brands. It is expected that the Gaiam’s yoga, fitness and wellness product business will have expansive distribution through Amazon, Kohl’s, Target and Bed Bath & Beyond.
Gaiam is Sequential’s first acquisition this year. The company acquired Martha Stewart, Joe’s Jeans and a majority stake in Jessica Simpson last year. Shmidman said he is considering other acquisition possibilities and is particularly interested in bolt-on options, which he said are “easy fits” for us. He said there is a robust pipeline, although nothing that jumps out as needing to be completed immediately.
“Sequential is 100 percent on track on its executive playbook for the long-term delivery of strong organic growth and acquiring great consumer brands,” Shmidman said.
With the acquisition, the company has raised its 12-month run rate projection to between $172 million to $177 million in revenue, or between $112 million to $115 million of adjusted earnings before interest, taxes, depreciation and amortization, from $150 million to $155 million of revenue, or between $92.5 million to $95 million in adjusted EBITDA. Run rate projections are based on the post closing of the Gaiam business and following the completion of the integration of the Martha Stewart business.