Iconix Brand Group (
) CEO Neil Cole is no stranger to the acquisition game.
Over the years, Cole has built up the company by acquiring
well-known consumer brands, 31 in all, from October 2004 to
February of this year. Today, Iconix owns 33 brands in the
fashion, athletic, electronic, home and entertainment industries,
including Candie's, Danskin, London Fog, Mossimo, Fieldcrest,
Starter, Ed Hardy, Sharper Image and Joe Boxer.
Some years have held better buying opportunities than others.
That's been the case in recent months when Iconix stepped up the
pace of deals to the levels last seen in 2007, with the
acquisition of three well-known brands since November.
"Over the last year, we have obtained over $1.5 billion of
availability from the capital markets, which combined with our
strong free cash flow of over $200 million has allowed us to
successfully execute on both our acquisition and buy-back
strategy," Cole told IBD in an email interview. "Our last three
acquisitions have been global brands that continue to expand our
The biggest deal came in November with the purchase of the
Umbro sports apparel and footwear brand and related intellectual
property assets fromNike (
) for $225 million in cash.
The buy brings a lot to the table. Umbro is an "iconic" brand,
says Cole, and is the original global soccer brand with 37
licensees in 80 countries.
"Umbro further diversifies Iconix into new markets and
enhances our athletic platform, which combined with Starter and
Danskin represent approximately $2.5 billion in annual retail
sales," said Cole. "In addition, we are also getting ready to
capitalize on the upcoming World Cup in 2014 and Olympics in 2016
in South America where we have a network of licensees."
Iconix licenses its brands to retailers and manufacturers for
use across a range of categories from clothes and accessories to
fragrances and shoes. It handles the advertising, promotion and
public relations in-house.
Iconix bought another athletic brand, Starter, from Nike in
In February, Iconix acquired another international brand, Lee
Iconix paid $72 million in cash for the global lifestyle brand
through its Luxembourg subsidiary. The more than 100 year-old Lee
Cooper is a well-known British denim brand, which has expanded
into several categories, including women's casual wear and
Lee Cooper is a licensing business with a group of 35
international licensees. The brand, which is sold in more than 80
countries, represents $500 million in annual global retail sales.
With the addition of Lee Cooper, overseas sales are expected to
represent roughly 33% of the Iconix's overall business in 2013,
Cole said at the time of the buy.
Also in February, Iconix acquired a 51% interest in the
Buffalo David Bitton brand from Buffalo International, owned by
David Bitton and his brothers. Iconix paid $76.5 million in cash
for the interest. To acquire the trademark, Iconix formed a joint
venture with Buffalo International, which Iconix will control.
The Buffalo brand consists of denim, sportswear, active wear and
accessories sold in better department stores, such asMacy's (
) and 30 stand-alone retail stores, mainly in Canada, operated by
the core licensee.
On an annualized basis, Iconix estimates the brand will
generate $25 million in royalty revenue.
Both Buffalo and Lee Cooper have a strong denim heritage, Cole
"We are focused on leveraging our broad network of licensees
to expand each brand into a complete lifestyle, as well as expand
their global footprint," he adds.
It's A Smaller World
Cole says it's a good time to make international buys:
"Besides tax advantages, the world is getting smaller with
digital and global communications, and we continue to look for
brands that can cross borders and benefit from our existing
licensee base," he said. "It also gives us the opportunity to
leverage their worldwide platforms and expand the global
footprint of the rest of our portfolio."
Benchmark Co. analyst Ronald Bookbinder says the Umbro buy is
by far the most important of the three deals. He estimates Umbro
will generate annual revenue of $40 million to $45 million.
In addition to boasting a "sizable revenue," Umbro has very
little exposure in the U.S, where it garners only 3% of its
revenue, he says.
Given the growth of soccer as a sport in the U.S., he says,
Umbro could be a substantial brand in the U.S. He says Iconix
could license the brand to a wholesaler, which would produce the
product and sell it to retailers.
Or the brand could be licensed directly by a retailer such
asDick's Sporting Goods (
With the licenses Umbro has in Europe, there's a chance it
will help Iconix leverage its U.S. brands to more European
partners, he adds.
The Umbro brand could help Iconix expand in categories where
it's underpenetrated, adds CL King & Associates analyst
"Given the brand identity and the halo they occupy in the
soccer market, particularly in Europe, they can expand it into a
lifestyle brand for apparel and accessories among others," he
Iconix, he adds, has the opportunity to continue to grow the
brand in Europe and also worldwide.
What's the environment for deals? "We have never been as
busy," said Cole. "With the last three acquisitions being
internationally focused, we continue to expand our horizon
globally, as well as beyond fashion brands. We see growth
organically and through acquisition."
After a slowdown in sales and earnings growth in late 2011,
Iconix saw a nice upturn in the most recent first quarter.
Earnings rose 26% to 54 cents a share, ahead of views. Sales
increased 19% to $105.1 million, also topping forecasts.
The recent upturn, says Bookbinder, was mainly driven by the
benefits of the three recent acquisitions, increased share
repurchases and controlled selling, general and administrative
(SG&A) expenses. He estimates the organic growth was
Iconix is using its balance sheet effectively, adds Marotta .
The pickup in acquisition activity and aggressive stock buybacks
have been major drivers for earnings, and also the multiple on
the stock, he says.
On May 22, Iconix shares hit a new 52-week high.
Bookbinder sees good prospects for more acquisitions, but he
says the stock is "fairly valued," which is why on May 16 he
downgraded the stock to hold from buy.
Analysts polled by First Call expect full-year earnings to
rise 26% to $2.15 a share. They expect a 9% gain in 2014 and a
14% increase in 2015.
Bookbinder says the environment for Iconix's business is
The middle-to-lower income consumer, like theWal-Mart (
) shopper, is still hurting amid the increase in payroll taxes
and higher energy prices. The upper-income consumer is doing
better, he adds, and is more confident and feeling more
Look for more buys from Iconix: "Between our free cash flow
and strong balance sheet we are extremely well positioned to
execute on further acquisitions," said Cole.