Billabong International Limited said it had entered into binding documentation to sell its 51 percent stake in SurfStitch and its 100 percent ownership of Swell to a consortium of investors including SurfStitch founders Justin Cameron and Lex Pedersen.
SurfStitch.com is based in in Australia and Europe while Swell.com focuses on North America (“Swell”)
As announced on Feb. 6, Billabong was launching a review that considered a range of options for both SurfStitch and Swell, as Billabong moves to a direct to consumer omni-channel model across its global operations.
The transactions are inter-conditional and are subject to conditions precedent which are typical for transactions of this type. The Transactions are also conditional on the completion of the funding process being undertaken by the SurfStitch Consortium, with this condition to be satisfied by end of day Aug 25. Completion is expected to occur in mid-September 2014.
Upon completion, Billabong will receive more than A$35 million as a result of the transactions, comprising sale proceeds, loan repayments and other consideration. Billabong will also enter into agreements for the continued wholesale supply of products to SurfStitch and Swell.
The sale will allow the company to narrow its strategic focus and to invest in building its mono-brand ecommerce and omni-channel businesses.
The company expects the transactions to be earnings accretive to Billabong in terms of both EBITDA and net earnings, although the extent of the improvement is contingent upon the future sales to SurfStitch under the new supply arrangements.
"The transactions align with the seven point turnaround strategy announced at our AGM last December,” said Billabong CEO Neil Fiske.
"In recent months we have begun the process of taking over the branded websites previously outsourced to SurfStitch. With these agreements we can accelerate our investment in the online presence and digital marketing of brands such as Billabong, RVCA and Element, which will engage our core consumers and in turn benefit the wider business. We believe there is an enormous untapped opportunity here for the company.
"I’m pleased that through these agreements we will also continue the constructive relationship we’ve had with SurfStitch as they enter an exciting new era for their business.“
SurfStitch co-founder Justin Cameron said, “This is the next natural step for our global market-leading ecommerce operations.
"Today’s agreements will allow both parties to pursue their strategic vision. We’ve valued the close relationship with Billabong and, like Neil, we’re glad it’s one that will continue.”
International investment banking firm Guggenheim Securities advised Billabong on the review and sale process. JP Morgan is the funding arranger and adviser to the SurfStitch Consortium.
