Clarus Corp. (OTC: CLRS) announced it is acquiring Black Diamond Equipment and Gregory Mountain Products in two separate but related transactions. Under the terms of the agreements, Clarus will pay $90 million in cash for Black Diamond and $45 million for Gregory, both subject to adjustments. In both cases, approximately 50 percent will be paid with Clarus common stock valued at $6 per share and approximately 50 percent will be paid with a seven-year, 5-percent subordinated note. For the year ended Dec. 31, 2009, on an unaudited basis, Clarus reports that Black Diamond and Gregory produced combined revenues of approximately $113 million. Of that, Black Diamond accounted for $86 million and Gregory $27 million.
In addition, a number of owners of Black Diamond shares, including current Black Diamond CEO Peter Metcalf, will use a portion of their cash consideration from the sale to purchase shares in Clarus at $6 per share. After the closing of transactions, the board of directors for the new company will own approximately 35 percent of the shares. Click here to read the official May 10 news release regarding the acquisition.
Metcalf told SNEWS® at 6 a.m. PST, prior to the official Black Diamond release going out, that this deal put into place the final two pieces in an evolving strategic plan that needed to be implemented -- a clear succession plan for himself, and the establishment of a long-term capital structure that would ensure a lasting and autonomous company.
“I went to my board during our annual meeting last year and shared my concerns and plans with them, that included doubling the size of the business over the next five years as we have during the last five,” Metcalf said. “At the same time, I told them we needed to seriously think about our capital structure and to talk about me and succession planning for our company.”
As a result of the sale, Metcalf told us that he now has a very strong board that will serve as a backstop for the CEO position and the senior management team, and a long-term capital structure that ensures the future of Black Diamond.
“It is very exciting for all of us,” Metcalf told SNEWS. “We have the means by which we can go public without all the usual time, cost and energy spent doing it, and we are able to do it while maintaining the integrity and culture we have created over the 21 years we have been in business.”
In announcing the acquisition via an email letter to shareholders on May 10, Warren Kanders, executive chairman for Clarus, wrote, “We believe these brands create a unique platform to build a large, global, diversified company in the outdoor equipment and lifestyle markets both organically and through targeted acquisitions.”
During an 8:30 a.m. EST conference call to announce the sale to investors, Kanders stated, “We have been interested in the outdoor industry for a long time, largely because we believe the trends toward wellness, environmentalism, and participation in high-performance, lifestyle-defining sports are providing meaningful tailwinds that benefit well-positioned companies in this space. Black Diamond and Gregory are among them, and provide an excellent entry point into this market with their respective brand positions and distribution scope to allow for significant organic growth opportunities as well as the leverage points needed to make future acquisitions work.”
He added, “As soon as practical following the closing of the transactions, Clarus expects to relocate its headquarters (from Stamford, Conn.) to the current headquarters of Black Diamond in Salt Lake City, (to) transition the company to a national stock market listing, and (to) seek shareholder approval to adopt ‘Black Diamond Equipment’ as the company’s new name.” Gregory will be one of its brands.
The SEC filing regarding the sale notes that Clarus expects the “integration and combination of Black Diamond and Gregory will produce incremental profit primarily from revenue synergies created through leveraging each business’ distribution network to grow various product categories and brands in geographies and end markets in which they currently are not sold, as well as from cost savings.” The SEC filing also notes that currently approximately 50 percent of the newly formed Black Diamond Equipment’s sales are expected to be in North America, approximately 30 percent in Europe, and approximately 20 percent in Asia, Africa, the Middle East and South America.
While relatively new to Black Diamond, Kanders is no stranger to the Gregory brand. He acquired the brand when he was at Armor Holdings in 2004. Armor was sold to BAE in 2007, but Kanders regained control of the brand as a majority shareholder in Gregory as part of the investment partnership that acquired Gregory from BAE Systems in early 2008 (Click here to read our March 27, 2008, story, “Gregory Mountain Products back in private hands following management-led purchase.”). Kanders will continue as executive chairman of the new company.
Rob Schiller, vice chairman of Gregory and its former president as well as a partner with Kanders in the 2008 acquisition of Gregory, will be appointed executive vice chairman and become a member of the company’s board of directors. Peter Metcalf, the co-founder, president and CEO of Black Diamond, will be named president and CEO of the new company and will also become a member of its board of directors. Robert Peay, Black Diamond’s CFO, will continue to serve in that role with the new company following the closing of the transactions. Philip Duff, one of the original investors with Black Diamond, a current member of Black Diamond’s board of directors and a former CFO for Morgan Stanley, will also be joining the new company’s board.
Who is Clarus?
Since December 2002, when Clarus sold substantially all of the operating assets of Clarus’ legacy e-commerce software business, the company retained its public company structure, its cash resources, and net operating loss carryforwards, which Kanders told us offer very nice tax benefits. A carryforward is an accounting technique that applies net operating losses to future years’ profits in order to reduce tax liability. Generally accepted accounting principles (GAAP) specify that loss carryforwards can be used in any one of the seven years following the loss.
Since its delisting from the Nasdaq in 2004 because it essentially had no real operations, Clarus has been operating as an over-the-counter stock shell company with a goal of redeploying its assets into an operating business or businesses that would serve as a platform company for future growth. While several deals came close, none reached fruition, Kanders said, but he remained patient knowing he would only invest when he found the right company or combination of companies that held a promise of growth and success.
Kanders told SNEWS that he fully expects the new company, Black Diamond Equipment, to be listed on either Nasdaq or NYSE once the transaction closes.
What will the new Black Diamond Equipment look like?
While Kanders told SNEWS that Gregory would be a product line within the Black Diamond Equipment company, he was also very clear that both Black Diamond and Gregory would maintain their individuality and brand names for clear market differentiation. No decisions have been made, we were told, regarding operational, staffing or company location changes. For now, Gregory will remain in Sacramento. Acting Gregory CEO Gray Hudkins told us he would continue to serve in that role as long as Metcalf desires, and when a change is made, he will return to working for Kanders as he has for the past eight years.
Though there is brand overlap, there is also significant brand distinction in the distribution platform globally. In the United States, both Gregory and Black Diamond count REI and EMS as significant retail partners. For Black Diamond, Backcountry.com is also considered a significant retail partner. However, both companies maintain that the core strength and majority of sales are realized through smaller specialty outdoor retailers. Overall, Gregory reports it is distributed through 900 retail doors, 500 of which are located in the United States. Black Diamond says it has 1,000 individual retail accounts, representing 1,500 doors globally. In addition to Black Diamond’s account base in North America and Europe, it has 24 distributors in Asia and the South Pacific, one distributor in Africa and four in South America.
Interestingly, the majority of Gregory’s sales are currently realized through the Asian market, with the product offering there expanding into daypacks, briefcases and shoulder bags. It also owns two retail stores, one in Tokyo and the other in Seoul, South Korea.
Black Diamond is based in Salt Lake City with over 375 employees worldwide. It owns a 22,000-square-foot manufacturing facility in Salt Lake in addition to a wholesale distribution center. It also has European offices, led by Christian Jaeggi, located outside of Basel, Switzerland, and a distribution facility close by in Germany. In 2006, Black Diamond established operations in southeast China with a Black Diamond-built and -managed facility, including a state of the art 100,000-square-foot manufacturing and distribution space with attached offices that are operated and staffed by Black Diamond employees. BD Asia is currently led by Ryan Gellert. Both of Black Diamond’s manufacturing operations are ISO 9001 certified by European-based auditors.
Gregory is currently based in Sacramento, Calif., and has approximately 100 employees worldwide. It also operates a 41,000-square-foot manufacturing facility in Calexico, Calif.
Kanders and team certainly expect success and growth, but made it very clear to SNEWS there is no head-long rush for expansion and increased sales in the plan. “We are at an inflection point I believe,” said Kanders. “And Peter (Metcalf) understands that business is both an art and a science, and while we were presented with a very unique opportunity to combine the best of Clarus and Black Diamond and Gregory into one company, we don’t expect to grow quickly just for the sake of growing quickly.
“Peter is one of the most interesting people I have ever met and so special in the way he combines the business and the passion and love for what he does with pure intelligence and common sense,” added Kanders. “We are a very lucky company, and we now have the opportunity to work together to move this new company forward in a methodical but purposeful manner.”
Serendipity is alive and well
For a number of the executives, this acquisition, merger, coming together or, in more simple parlance, the linking up of Gregory and Black Diamond solidifies a thread of connection that has loosely bound them for decades.
In 1973, Metcalf, then a high school senior at Garden City High in Long Island, wrote a letter to Wayne Gregory who was then running his first company, Sunbird. Metcalf was going to attempt a first ascent of Mount Fairweather with some of his high school buddies and told Gregory that they thought his packs were the best and would he please support the effort. Gregory promptly sent Metcalf and team a few packs, and sold them others at a steep discount.
Dion Goldsworthy, now director of export sales at Gregory, was one of the owners of Rock Creek Lodge near Bishop, Calif., in the mid-80s when Metcalf and his wife, Kathy, were married at the lodge.
Jim BoisD'Enghien, director of sales and marketing for Gregory, worked closely with Black Diamond when he was running sales and marketing for Atlas Snowshoes to develop the first crampon-compatible snowshoe in 1997-1998. The designers that worked on the project for Atlas were Daniel Emerson and Ben Warner.
And, for Wayne Gregory, who is Mormon, he is now part of a company that is headquartered in Salt Lake City, the church’s global base, and led by the same man who years ago first asked him for a pack to go climbing in Alaska.
It all seems meant to be.
A plan 21 years in the making
Black Diamond Equipment was founded on Dec. 1, 1989, when the assets of Chouinard Equipment Ltd. were purchased out of Chapter 11 bankruptcy by Metcalf, Maria Cranor, Meredith Saarinen, Hong Kyu Kwak, plus other former Chouinard employees and a few outside investors, including Duff. Yvon Chouinard had placed the company in bankruptcy in early 1989 to protect it and Patagonia from several liability lawsuits filed against Chouinard Equipment by individuals who were alleging there were insufficient warnings on climbing products about the dangers of climbing.
Metcalf told us he and his team have been able to reach this point simply because they created a unique company structure, with no professional investors, no partnerships, a true board of directors, and friends and family who were investors with a long-term view.
“This was about a vision and making a difference all along,” Metcalf told us. “I went to family, friends and fools when we first put this deal together and while I would not commit to a liquidity date and made them understand this was not about pulling money out in four to five years, I did promise them we would run this professionally, with a board and I would serve at the pleasure of that board. We have not put one penny into this business since 1989. Our first goal was to get to $5 million a year in sales, and to reach a point where we could make a real difference by being corporate champions of innovation, and protecting access and preserving wild places.”
Metcalf also said the employees are all owners of the company through its KSOP, so they have felt invested in the future of the company, its direction, its culture and will now be rewarded for that loyalty.
Just as the original plan in 1989 was unique in its approach, Metcalf and Kanders are embarking on the next chapter that is equally unique in its inception.
“While it is termed an acquisition, in many ways, it is a rollover for many shareholders and a way to get Black Diamond public and stay autonomous,” Metcalf told SNEWS. “This deal was the answer to my long-term questions and it ensures the permanence of this company. It also ensures that we are able to raise the stature of the outdoor industry in Utah with a company that is now even more influential in being a champion for access, environment and preservation of wild places.
“It is truly wonderful for the next generation of managers behind me. I think about how I felt starting this company 21 years ago -- it was enthralling and intimidating. I am ultimately not going to finish this line on the climb we start today. It is our managers who now have a strong brand and a global platform that will take us all the way there, and that makes me very happy,” he said.
Added Kanders, “We got lucky. None of us planned this. What I love about Peter is his personal and business relationship to climbing. There is a lot of teamwork in climbing and in a significant way you have to rely on your partners, and as a result, those partnerships tend to be very meaningful and very deep. I feel this new company venture is like that…it is very, very exciting for me. I am truly overwhelmed and a very lucky guy.”