Columbia adds Montrail to its family of footwear brands

Columbia Sportswear Company (Nasdaq:COLM) announced the acquisition of Montrail for a cash payment of $15 million plus the assumption of certain liabilities in a conference call to investors today, making official what SNEWS® had been sworn to silence about for over three months. Montrail's sales for 2005 were reported at $16.5 million. (Podcast-enabled story featuring a 5 minute interview with Menno Van Wyk -- click link at end of article to listen).
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Columbia Sportswear Company (Nasdaq:COLM) announced the acquisition of Montrail for a cash payment of $15 million plus the assumption of certain liabilities in a conference call to investors today, making official what SNEWS® had been sworn to silence about for over three months. Montrail's sales for 2005 were reported at $16.5 million.

Columbia touted Montrail's leading position in the SNEWS® Outdoor Retailer Survey over the last several years in both the official company press release and several times during the call with investors, and used the survey information to underscore Montrail's position as a high-end specialty brand.

In describing how he envisioned Montrail fitting into the Columbia family of footwear brands that include Sorel and Columbia Footwear, Columbia President and CEO Tim Boyle said, "Montrail is a supplier to many of our specialty operations. It's more expensive than any Columbia product we offer. Its distribution is specialty stores and sporting goods. In our opinion, distribution hasn't been what it can be. Like with Mountain Hardwear, we don't need another brand to compete with Columbia. We need brands that can surround Columbia in a halo fashion to lift the entire corporate, multi-brand strategy."

Menno Van Wyk, founder and current CEO of Montrail, will be relinquishing the reigns he's held onto for over 13 years to Scott Tucker, the current president. Tucker has been named general manager of Montrail and will report to Brad Gebhard, vice president of footwear at Columbia. Gebhard is now responsible for design and merchandising for all of the company's footwear brands. Van Wyk told SNEWS® he will be acting as a consultant to Columbia for the next year.

"We were at a place in our growth where, as a company, we needed a strong strategic partner to help us leverage and expand sourcing capabilities, logistics, distribution, international growth and our capital strength," Van Wyk said.

"We understand the unique value, positioning and integrity of the Montrail brand, and we believe we can leverage our sourcing, logistics and capital strength to develop even more opportunities for the Montrail product," Boyle said. "Leveraging the performance and fit characteristics of the Montrail branded products will improve the fit and quality of our other footwear brands as well."

"There is no doubt that with the Columbia infrastructure, we will be able to design and develop ever-better Montrail products and more efficiently deliver them," Van Wyk said.

Tucker confirmed that Montrail will be moving its offices, most likely by the end of 2006, from Seattle to the Columbia campus in Portland. He also told us retailers should expect no big changes from the company and that Montrail intends to keep its focus on developing "leading products for identified niches of interest." That includes trail running (of course), climbing, light hiking, and a continued expansion into lifestyle footwear, something that has been going very well for Montrail, Tucker said.

As for Columbia's agenda, Boyle made it clear he expected margins and distribution to improve. "First order of business -- with the additional capital Columbia can provide, the company can continue Montrail's product development and even accelerate it slightly. We will increase distribution of product in specialty by using the new Kentucky facility -- especially on the East Coast. Ultimately, we will look to expand internationally."

Silver Steep Partner, a new financial advisory services firm, scored the company's first big transaction with this deal, acting on behalf of Montrail. For founding partners Sally McCoy, a 20-year veteran of the outdoor industry, and Nathan Pund, formerly of RBC Capital, the deal is particularly sweet since, as Pund told SNEWS®, "It shows that a deal can get done that is fair for all parties and in the best interests of everyone. And that is always our goal as a firm."

Columbia announced that it expected the acquisition to be neutral to first quarter earnings and slightly dilutive to earnings for the full year.

SNEWS® View: Good for Menno and team. And no, despite rumors that have been circulating, Menno is not immediately jumping into politics, though he did confirm that he was, for a moment, considering a run for Congress this year. As for the deal, it is a fair one for all, and, by our numbers, probably just over 1x sales. All told, we would estimate the full deal is probably in the range of $21 million -- although with no one confirming, it is only an educated guess. The biggest challenge for Montrail now, and in particular Tucker, is successfully navigating the transition from what has essentially been a very entrepreneurial company, lean and mean with plenty of spirit and attitude, into an integration with a much larger and more corporate parent. Tucker will have to be the keeper of the flame for that attitude, because without it, Montrail could become just another good footwear company, and not a special one.

As for growth, internationally, it's a huge opportunity. Currently, international sales represent about 20 percent of Montrail's business, with solid sales in Hong Kong, China, the United Kingdom, France, Italy, Spain and Canada. With Columbia's international distribution connections, there is little doubt the company is licking its chops at the prospect of expansion in Europe. We wouldn't be surprised to see Europe equal current U.S. sales numbers before too long with the right leverage and product.

As for Columbia as a partner, it is absolutely the right move in our opinion. We know a number of the other suitors, and while each had its own strengths and weaknesses, Columbia had been the one that had studied Montrail the most, knew the company best, and has the most to gain and give. Oh, and can we finally stop hearing about when there will be a Mountain Hardwear footwear line? Thank you!

A SNEWS® Live exclusive -- Listen to our interview with Menno Van Wyk, founder of Montrail, from the Montrail booth at Outdoor Retailer Winter Market 2006. Click here to listen.

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