Anta's Huge Acquisition Of Loss Making Enterprises Management And Operation Upgrades Into Key
- Dec 18, 2018 -

Since 2009, ANTA Sports (2020.HK) has implemented a multi-brand strategy based on the acquisition of FILA's China business. At present, ANTA Sports has two parent brands and seven acquisition brands covering the public and high-end markets, covering children, outdoor and leisure sports. Compared with the successful acquisition of the brand, the status of Anta Sports' own brand is somewhat “marginalized” in the minds of some consumers. According to industry insiders, for ANTA Sports, which has multiple brands at the same time, how to face the management upgrade and coordination of operations will be a big test.

Hot potato

On December 7, Anta Sports officially announced that the company's joint private equity fund FountainVest Partners (Fangyuan Capital), Chip Wilson (founder of the Canadian yoga brand lululemon) and Tencent formed an investor consortium to Finnish Sporting Goods Group - Amer Sports A tender offer for all of its issued and outstanding shares was issued. The offer price per share was 40 euros in cash, and the total issued and outstanding equity offer value was 4.6 billion euros (approximately RMB 37.1 billion). The Amer Sports Board of Directors unanimously recommended that the company's shareholders accept the tender offer, the acquisition document will be announced on or before December 20, and it is expected that the acquisition will be completed by the second quarter of 2019.

The acquisition of Amer Sports is a Finnish sporting goods group headquartered in Helsinki, starting with the tobacco business. According to Amer Sports' earnings report, the company's operating income from January to June 2018 was 11.07 euros, down 5% year-on-year, net profit was -4.3 million euros, and net profit for the same period last year was -5 million euros. Since 2013, the company's revenue growth rate has been declining, and its revenue growth in 2017 was only 3%.

This seems to be similar to the FILA situation that ANTA Sports acquired in 2009. According to public information, the Italian sports brand FILA entered the Chinese market in 2005, targeting high-end consumer groups between the ages of 25 and 45. In 2007, Belle Group established Full Prospect to purchase FILA's China business. According to relevant financial reports, as of the end of 2008, FILA not only failed to achieve profit, but lost nearly 32.18 million Hong Kong dollars.

In August 2009, ANTA Sports announced that it will acquire the FILA China trademark owned by Belle Group. After the acquisition, ANTA Sports has not made detailed announcements on FILA's revenue data. Zheng Jie, executive director and group president of ANTA Sports, said at the 2017 interim results conference that FILA's revenue share is close to 30% of the company's total revenue, which is close to 2.196 billion yuan. At the mid-term conference in 2018, Zheng Jie said that the growth rate of FILA reached more than 85%, and the interim results of FILA were calculated to be close to 4 billion yuan.

In the face of the acquisition of Amer Sports, the Furui research report mentioned that Anta Sports Management revealed in the investor meeting that Amer Sports' financial status will not be included in Anta's financial statements, and Anta Sports' financial indicators remain independent. Some insiders said that perhaps there is a "successful case" (referring to Anta's acquisition of FILA), giving Anta the confidence to acquire Amer Sports. In terms of the shareholding of Anta, ANTA Sports will need to invest at Approximately 2.666 billion Euros (approximately RMB 20.9 billion) in the acquisition of Amer Sports. The company also mentioned in the announcement that the transaction will be paid by cash and borrowing. This transaction will drag down the cash flow of ANTA Sports, and because of the large number of investors, future execution sovereignty and debt interest rate fluctuations will be more difficult.

Anta Sports fell 1.94% on December 11 and fell again by 0.56% before the press release (December 12). Furui said that this may be related to the “post-trade (referred to as Amer Sports) company mentioned in the investor conference of ANTA Sports Management, which may be more committed to ‘de-leveraging’, which has a negative impact on the dividend payout ratio.”

Unbalanced crisis

According to the company's 2018 interim report, Anta Sports' revenue in the first half of the year reached 10.55 billion yuan, up 44.1% year-on-year; net profit was 1.94 billion yuan, up 34% year-on-year; gross profit margin was 54.3%, up 3.7% year-on-year; The profit margin decreased from 25.9% to 25.5%. The company's explanation for this is due to increased sales and distribution expenses and new brand losses. The earnings report also showed that the average inventory turnover days was 83 days, an increase of 15 days. The company said that the rise in retail business and the addition of new brands have prompted some of the original inventory to be digested.

Anta Sports began to acquire foreign mature sports brands in 2009. In 2009, ANTA Sports acquired the Italian sports brand FILA; in 2015, it completed the acquisition of British outdoor leisure and mountaineering brand SPRANDI; in 2016, it invested 150 million yuan to acquire the high-end ski brand DESCENTE in China; in 2017, it acquired the children's wear brand KINGKOW. In the same year, a joint venture company was established to operate the outdoor brand KOLON SPORT in China. At present, ANTA Sports has a total of 9 sports brands, including DESCENTE, FILA, FILA KIDS, KINGKOW, KOLON SPORT, SPRANDI, Anta, Anta Children and NBA, a total of two parent brands and seven acquisition brands, involving children, outdoor and leisure sports. And other fields.

Under the implementation of the multi-brand strategy, the growth rate of the brand acquired by ANTA Sports maintained a strong momentum. In the third quarterly report of 2018, ANTA Sports said that the retail sales of its own brands achieved a double-digit increase compared with the same period, while other brand products (excluding the new company's brand after July 1, 2017) The retail sales amount increased by 90% to 95% compared with the same period. In the 2018 interim report, the company expressed satisfaction with the acquisition of brands outside the NBA and the performance of Anta children, but did not mention Anta, one of the parent brands. Mr. Liu, a consumer interviewed by the reporter, said that compared with other brands, the parent brand Anta is in a position of “not inferior” in the domestic market, and the quality of the products cannot be said to be much better or worse.

Unlike Anta Sports, Li Ning (02331.HK), which also acquired foreign brands, is still the parent brand. Li Ning owns the outdoor brand Aigle, the yoga brand Danskin, the badminton brand Kason and the casual brand Lotto, but Li Ning has not given too much attention to the domestic market development of these brands. According to the 2017 annual report data, the company's main source of income is the parent brand products, and the total revenue of the acquired brands accounted for 0.6%.

According to relevant data provided by the China Industrial Research Institute, it is estimated that by 2021, the value added of the sports industry will reach 133.4 billion yuan, accounting for more than 1.0% of the GDP, and the sales revenue of the sporting goods industry will reach 260 billion yuan. According to industry insiders, for ANTA Sports, which has multiple brands at the same time, how to face the management upgrade and coordination of operations will be a big test.