Following in the footsteps of Chaco and Ahnu, footwear brands that recently were acquired by larger companies in order to survive, END Outdoor staved off possible bankruptcy with a last-minute, white-knight acquisition by LaCrosse -- click here to read the official release posted to SNEWS®.
In the end (sorry, that was too easy), the acquisition, for a reported $500,000 by LaCrosse, gives END Outdoor much-needed resources in terms of capital and support infrastructure and allows LaCrosse the ability to quickly and cheaply add an innovative running shoe brand to its portfolio. The newly formed subsidiary that LaCrosse formed to acquire END is also named END.
How END got here from a once-promising brand garnering lots of buzz -- and a recent Best Trail Running Shoe Debut award in March 2009 from Runner's World -- is rather complicated.
END launched with $2.3 million in first round funding in 2008, funding that was due to expire in March 2009. These were essentially convertible notes meaning IF the second round of funding had come through, those note holders would have been converted to shareholders. As of the sale to LaCrosse, however, those notes became valueless.
The first hiccup occurred in August 2008, when the END factory in Guangzhou, China, shipped the company’s first product, some of which, END discovered on inspection, did not have a properly cured rubber toe. The decision was made at END to delay shipping product for one full season, Andrew Estey, co-founder of END told SNEWS in a September 2008 interview. There was sufficient product in saleable quality -- around 5,000 pairs -- to allow some fulfillment to key accounts such as Zappos, Backcountry.com and Rock Creek, but no more.
Insiders told SNEWS, and Estey confirmed via email, that the months of lost sales revenue from not shipping orders and continued burn rate on the initial investment was very damaging. With the intangible lost opportunity of product in stores gaining potential sales steam and customer popularity and then the market tanking in late 2008, the results were catastrophic. END found itself having to seek out additional funding well before it had anticipated, or face the prospects of shutting down. Both Estey and co-founder Ben Finklea had, as of September, stopped paying themselves to help preserve the bottom line, but even that was not enough.
During that September 2008 interview with SNEWS, Finklea indicated that if all went well, the company would be seeking a second round of funding with angel funds sometime late in 2009. Angel funding, though, had all but dried up as funders' own portfolios had been hammered by the stock collapse, leaving Finklea and Estey no choice in early 2009 but to seek out venture capital funding -- something Finklea and Estey told us they did not want to do until the company was at least $1 million in sales.
On Jan. 30, Finklea, now publisher and CEO of Wend Magazine, was forced out when a term offer sheet for a reported $1 million to END in second round funding by a venture capital firm mandated Estey become CEO and Finklea move on. Estey took over as CEO, but the downward financial spiral continued.
With Finklea's departure, we were told a reported $1 million in additional VC money that would likely have been forthcoming also walked away and no term offer sheet was submitted. That left Estey scrambling to find much-needed additional investment. Sometime in March, the venture capital term offer sheet expired and the $1 million came off the table.
According to a February 2009 news release (click here to read), the company was launching road running and water shoes and expanding distribution across the United States and Canada. Reportedly, it had 100 retail doors with orders for spring 2009 delivery. Without needed additional capital, and the original investment fund dried up, END's last option and hope to stave off bankruptcy was a quick sale.
Though we knew of Finklea's departure sometime in late February, SNEWS first became aware of END's likely cash crisis when we heard Estey was seeking a sale in early April. Enter LaCrosse, which, according to insiders, is buying a company with quite a bit of upside despite its humbling sale.
LaCrosse company officials confirmed that END Outdoor would not be moving and would, for now, stay in its Portland-based design studio. All employees will be able to remain with END if they choose. Estey's title has yet to be decided upon.
SNEWS® View: Andrew Estey is a former Nike designer who will now be able to focus on what he does best -- designing shoes -- though we are quite certain this is a scenario he had hoped would never have to play out. When the company launched in early 2008, it had stated goals of selling 50,000 shoes by fall 2008 and 100,000 shoes by spring 2009. By 2012, it expected sales to be at $75 million. Currently, sales are at $600,000 with barely 100 storefronts. Revenue projections for 2009, and these are generous in our view, are for $2 million in sales IF all goes smoothly. All has certainly not gone smoothly.
We may never know exactly what happened between Estey and Finklea, but the venture capital-inspired rift that caused Finklea’s departure was certainly the nail in the coffin for the future aspirations of END remaining an independent venture. For his part, Finklea seems very, very happy running Wend magazine.
All things considered, this turned out about as well as it could have. LaCrosse will be a strong partner, though, it remains to be seen if END’s desire to stay outdoor specialty focused plays out within the LaCrosse distribution framework. Perhaps most significant is the fact that many former Nau employees, including the talented Adrienne Moser, are now working at LaCrosse, and we are sure that had a lot to do with driving this acquisition. So, the culture fit is there already. Now, all END has to focus on is designing and delivering innovative product to retailers who, by all accounts, continue to like what they have seen from the company thus far. The days of chasing investment money have been replaced by chasing sales -- and that’s a nice switch.