Equity Firm Strikes Out

Just a decade after building Easton-Bell Sports Inc. into a formidable sporting goods manufacturer, Fenway Partners LLC has sold off a big chunk of the Van Nuys company. The $330 million sale this month of Easton-Bell’s baseball and softball business to Canadian manufacturer Bauer Performance Sports Ltd. marks a turnabout for the New York private equity firm, which built Easton-Bell with several large acquisitions prior to the financial crisis. Easton-Bell also announced plans to sell off its hockey business, and last year, the company got out of lacrosse. “Companies want to put a lot of businesses together to build a powerhouse. And after they put it all together, they see it doesn’t work,” said Paul Swinand, an analyst that covers sporting goods for Morningstar Inc., a market research firm in Chicago. The bulk of the company’s remaining business will consist of football and cycling, as well as some action sports including snowboarding. Products are sold under the Riddell, Giro, Blackburn and Easton brands. The company plans on using the proceeds of the divestitures to support its remaining business. It also plans to use some of the proceeds to help pay down its $350 million debt. Once the sales are completed, the firm will change its name to BRG Sports. Fenway did not respond to calls for comment, and Easton-Bell Executive Chairman and Chief Executive Terry Lee was not made available for comment, but a company spokesman said the sales came after Bauer approached Easton. “The transaction streamlines the company’s operations and strengthens its financial position,” the spokesman said in an email. “This deal positions BRG Sports for future strategic acquisitions to grow and be increasingly competitive.” Family business The company was founded in 1922 by archery enthusiast Doug Easton as a manufacturer of equipment for that sport. It wasn’t until the late 1960s that it entered baseball and other sports. In 1972, Easton died and the business was taken over by his son Jim Easton, who led further expansion in the 1990s, including into hockey and cycling, which took off domestically with Lance Armstrong’s victories in the Tour de France. Then in 2006, Jim Easton sold off the business for $400 million to Fenway Partners, which was building a sporting goods powerhouse. In 2003, Fenway spent $100 million to acquire Riddell Sports Group, a maker of football helmets and other gear for college teams and the NFL. A year later, Fenway forked out $240 million on Bell Sports Corp., a manufacturer of helmets for bicycles and motorsports. It combined all three businesses to form Easton-Bell Sports Inc., maintaining the Easton headquarters in Van Nuys. It further expanded in 2010, buying Talon Lacrosse, a San Marcos maker of equipment and apparel for that sport, which has grown from its East Coast origins to national popularity. The company employs more than 3,000 workers at 34 facilities worldwide. But the foray into lacrosse was short-lived, with Easton exiting the sport last year. The company posted a restructuring charge of $23.5 million. Still, the company managed to improve its financial performance between 2009 and 2011, when it moved from a loss of $4.1 million to a profit of $10 million, according to regulatory filings. Indeed, by 2012, the company was the largest maker of protective equipment in the nation with a commanding market share of nearly 36 percent, according to a report by research firm IBISWorld of Melbourne, Australia. However, already problems were emerging. The company reported a decrease of about 1 percent in net sales and profit in 2012. IBISWorld notes that manufacturers of protective sports equipment were hit by the lingering recession and falling consumer spending, while cheaper imports took market share. Last February, Fenway made management changes. It tapped longtime board member Terry Lee as its chairman and chief executive. He replaced Paul Harrington, who the company said retired to spend more time with his family. (Tim Mayhew, the managing director of Fenway, also serves as the company’s president and chief operating officer.) A few months later in April there were news reports that Fenway was shopping the whole firm, but neither the company nor the private equity firm would comment. In its most recent earnings report in November, the company reported a net loss of $8.7 million and a fall in sales of more than 6 percent in its fiscal third quarter. It attributed the poor results to lower sales of its Easton cycling and hockey products. The company said its baseball and softball segments performed well. Cycling growth Swinand from Morningstar believes Easton-Bell simply tried to do too much in too many sports. He noted that industry giants with diverse product lines, such as Nike Inc. and Under Armour Inc., use contract manufacturers and operate more like brand managers. He said it’s difficult for any one company to build top gear in myriad sports. The wide range of materials, from leather for baseball mitts to high-tech polycarbonate for football helmets, is a challenge to master. “Sports are driven by branding, but also by innovation,” Swinand said. “When you start getting the brand umbrella too big, it leaves other companies room to come in.” And while exiting various segments could be perceived as a sign of failure, it could help Easton-Bell rebound long-term. “This could be one of those win-wins for both of them,” said Sean McGowan, managing director of equity research at New York investment bank Needham & Co. “Bauer has a track record of being able to show growth in mature sports and the Easton brand has a lot of credibility.” Bauer, based in Kitchener, Ontario and traded on the Toronto Stock Exchange, is the first name in hockey gear manufacturing. It has contracts with the National Hockey League, USA hockey and college teams. The company was founded in 1927 and boasts of developing the first modern skate with a blade attached to a boot. It sells products in 45 countries through more than 3,700 distributors. Matt Powell, founder of Scarborough, Maine retail consultancy Princeton Retail Analysis, said Easton-Bell could be looking to shop some of its other brands to Bauer and other firms, but interest could be limited. Suitors may be especially tough to find for its Riddell brand, given its association with the NFL, which just signed a $765 million concussion settlement with former players, though the ruling faces challenges. “For Riddell to find a buyer interested in getting into that sort of controversial space is going to be tricky. It’s going to drive the value down,” Powell said. “And with hockey I don’t think there’ll be much value. It’s not a growing sport and Easton isn’t a known brand in that space.” Now the question becomes how Fenway, assuming it keeps the remaining business, may try to build it back up with some strategic acquisitions – as it indicated in what little it has said about the sale. Powell said the company would be best served to focus on its cycling business. “It could be that they’re just trying to put a tuxedo on a penguin,” he said. “But one of the ways you can strengthen this company is to make acquisitions in the biking segment, where they’re already strong in a strong sport.” Whatever the plan, Fenway does have solid brands on which to build. Craig Levra, chief executive of Sport Chalet Inc., the upscale sporting goods retailer based in La Cañada Flintridge, noted that customers respect the company’s brands. “Overall, we do extremely well with their lines and they have a great reputation,” he said.