Black Diamond Inc. (NYSE:BDE), the parent company of Black Diamond Equipment, Poc Sports and Pieps told investors Monday that it has hired financial advisory firms Rothschild Inc. and Robert W. Baird & Co. to lead the exploration “of a full range of strategic alternatives for each of the company’s brands.”
That most likely means a sale of the brands, analysts tell SNEWS. Black Diamond officials didn't seem shy of the likelihood, either: "It comes at a time when premium active lifestyle and outdoor brands are selling at historically high levels, and there is a scarcity of authentic branded assets available to strategic acquirers,” said Warren Kanders, executive chairman of Black Diamond Inc. “It represents the logical next step in our ongoing efforts to unlock value for Black Diamond shareholders.”
A year ago, company officials took a similar approach to set up the sale of its Gregory brand, ultimately bought by luggage maker Samsonite for $85 million.
Black Diamond Inc. also restructured leadership last year, naming former Sony and Gap executive Zeena Freeman as its new president, who is slated to succeed Peter Metcalf as CEO of the company by June 2015.
The latest shift to put the brands up for sale was not what Metcalf had envisioned three years ago, when Black Diamond set out on an ambitious plan to reach $500 million in revenue by 2015 through acquisitions and internal growth.
The company could never find stable footing on Wall Street, changing its strategies too often, said Andrew Burns, an analyst for D.A. Davidson.
"At the end of the day, with hindsight, all of those changes — going from acquisition mode, to launching apparel, to investing in additional managerial layers — all of that needed to happen before they went public. It's not a young company, but it was a young company in the public setting. That was their biggest mistake."
While Black Diamond has stumbled on Wall Street (the stock price hasn't changed much over five years), Burns said he was surprised by the timing of the decision.
"They didn't let the incoming team take a stab at turning around the company. If I were [Black Diamond President Zeena Freeman] I'd be miffed at not getting the time to implement my plan." Burns said he suspects Metcalf is disappointed as well. "It's clear this was a board decision and unfortunately for management, whether they want it or not, they're along for the ride."
SNEWS reached Metcalf over the phone on Tuesday. The Black Diamond CEO was in Washington D.C. working with the Conservation Alliance on land preservation and recreational use issues, a role he's transitioning to as the company's chief advocate for public policy.
"This has been a passion of mine since cutting my teeth with Chouinard, he said. All three of our brands are mission driven. How we are owned and capitalized are means to an end."
Metcalf acknowledged the challenges that Black Diamond faced as a public company. "It's a lot of psychology," he said. "Our stock would swing 30-40 percent and we never said a thing. When you have three specialty brands, that are relatively small by Wall Street standards, you're saddled with a very high cost of being public with a higher percentage of overhead costs."
Metcalf declined to speculate on what might be the best new ownership scenario for the brands, but said he's in for the long haul. "After 33 years of building this business, I have no plans to disappear," he said. "These are three leading brands with true innovation. They make a difference and they design it in a beautiful way. They are global brands that stand for something and resonate with people." The challenge forward, he said is: "how to continue growing the business, while making sure not to lose the culture that defines us."
Burns agrees that there is plenty of potential for Black Diamond, Poc and Pieps, especially on the global scale, where he thinks the brands carry even more prestige than in the United States. His firm upgraded its rating on the stock to 'buy' with a target $10 per share based on the news of the brands up for sale. He thinks Poc will be sold separately, while Black Diamond and Pieps will remain together. As for potential buyers, the usual big-name suspects of Amer Sports, Jarden, Columbia and VF Corp. will likely take a look, but in the end, Burns thinks the brands will sell to the highest bidder, which might not necessarily be the best fit for them.
"I expect to be surprised when an ultimate buyer is announced," Burns said. "Just as we were surprised when it was announced that Samsonite was buying Gregory."
Black Diamond effectively put itself up for sale as it reported its fourth-quarter 2014 earnings. Quarterly sales came in at $59.4 million, down from $60.4 million a year ago, but up 10 percent on an organic basis when accounting for the sale of its previously held Gregory assets. Gains from the remaining brands came from Black Diamond’s apparel, an increase in Poc Sports preseason bookings and restocking orders of winter gear, officials said. Black Diamond swung to a net loss in the fourth quarter of $86,000 versus a gain of $736,000 a year ago.
For the full year 2014, Black Diamond Inc. reported sales of $193.1 million, down versus $203 million, a year ago (with Gregory included) or up 15 percent versus $168.1 million (with Gregory subtracted). Net income for the year came in at $14 million versus a net loss of $5.9 million a year ago.
As of Dec. 31, 2014, cash and available-for-sale marketable securities totaled $40.9 million compared to $4.5 million a year ago. Total debt was $22.4 million compared to $38.0 million a year ago.
Looking ahead, Black Diamond officials anticipate 2015 sales of approximately $208 million, which would represent an increase of about 8 percent from 2014.