From Black Diamond to Granite Gear, Keen to Darn Tough Vermont, outdoor companies are feeling confident to access capital for growth again.
Across the United States, financial leveraging is coming off its lows
following the great recession. Whether it’s through a global stock offering or a
loan from a local bank, there are positive signs that manufacturers are raising
funds to expand their businesses with real estate, labor and equipment
investments or brand acquisitions.
To be sure, this isn’t the
over-leveraged financial landscape of five years ago. The gains are small and
economic pessimism lingers amidst 8 percent unemployment. But with interest
rates at record lows and executives and investors bullish on the outdoor
industry, some companies see an opportunity to step out ahead of the bulk of the
“If you have a good idea and people seem to be
taking to it, the best time to seek investments is when few others are,” said
Ric Cabot, president and founder of Darn Tough Vermont. “It’s an opportunity to gain a lot of
traction. Interest rates are down and the state was willing to help bring new
Within the past few years, the Northfield, Vt.-based sock
company spent a “couple million of dollars,” Cabot said, to build more warehouse
space, upgrade its equipment, including 30 new knitting machines, and hire
Darn Tough Vermont tapped local sources for funding,
including low-interest loans — below 3 and 3.5 percent — from the Vermont
Economic Development Authority and business loans from People’s United Bank.
Beyond having a local and close relationship with the regional bank, Cabot said
the key to Darn Tough Vermont's success in accessing financing during the
recession was the company’s collateral. It owns 67,000 square feet of buildings,
plus the equipment to manufacture its socks.
“That’s comforting to a
banker,” Cabot said. “It’s real tangible property creating a brand. They want to
make sure they’re insulated and protected. I think other brands, especially
startups, would have a difficult time financing growth today without
Darn Tough Vermont’s investments yielded an 82 percent rise
in sales from 2010 to 2011, Cabot said, plus 12 new employees for the company,
which now employs 147 people and is still hiring.
The story echoes itself
in Two Harbors, Minn., where Granite Gear is closing on a few new low-interest loans
through the state’s Northland Foundation and the Two Harbors Development
Commission, plus commercial financing through a local bank.
will go toward expanding the outdoor pack brand’s local manufacturing, including
equipment and the construction of new 1,000-square-foot “design hut,” CEO Jeff
Knight told SNEWS.
“While there are still markets in our economy that are
struggling, this industry has proven itself to be recession-resistant.” Knight
said. Lenders have been more encouraging recently, he said. “It’s still no where
near five years ago, certainly they are a lot more cautious.”
Knight said having collateral with about 12,000 square feet of buildings, plus
equipment, helped with obtaining a loan. Locally, the company manufactures
medical kits and packs for custom orders and special operations forces,
something it can’t do overseas. It’s expanding with more of those contracts, but
also with an eye on the benefit of having some manufacturing capabilities next
door, Knight said, such as better local control of design and building
“A year or two ago, we had only one full-time sewer here,
now we have six,” Knight said. The small company employs a total of 30 people.
Sales growth for 2012 is projected at 15 to 20 percent for the 26-year-old
On the West Coast, footwear brand Keen also announced real estate
investments to foster future growth. The Portland-based footwear brand purchased
a new 50,000-square-foot headquarters building in its hometown for $10.75
million, according to public records.
The purchase exhibits a commitment
to expanding Keen in Portland, officials said, but declined an interview for
further details on the financing. Public records show it was an good deal for
Keen — a foreclosed, bank-owned building which county tax records valued at
Financial optimism and opportunity isn't everywhere,
however. Other outdoor retailers and manufacturers have told SNEWS that they
continue to struggle with obtaining new loans and raising funds. Across the
pond, Europe is just coming off the worst of its financial crisis, clamping
banks and lending. Still, as the latest U.S. lending figures below suggest, the
overall financing environment here is turning a corner.
on the rise
The signals of a financial rebound, albeit small, aren’t just
anecdotal and aren’t from the outdoor industry alone. Earlier this year, the
Federal Deposit Insurance Corp. reported the amount of loans and leases held by
banks rose 1.8 percent to $7.47 trillion as of Dec. 31, 2011, versus the
previous quarter. That marks the largest quarterly increase in bank lending
since the fourth quarter 2007. Commercial and industrial loans, which began
rising in the third quarter 2011, led the growth in the fourth quarter — up 5.5
percent to $1.35 trillion in loans outstanding. For the first time since the
first quarter 2008, real estate lending grew, up 0.5 percent from the previous
quarter, which included a rise in commercial property lending.
companies primarily are driving the increases, according to data from the Small
Business Association, which reported a 0.3 percent decline in small business
loans outstanding (loans valued less than $1 million) to $597.8 billion
outstanding at the end of the fourth quarter. But that rate of decline continues
to shrink, SBA officials said, and the value of small business commercial and
industrial loans (those usually backed by collateral) increased for the first
time in seven quarters with micro C&I loans (less than $100,000) accounting
for most of the growth.
In a Federal Reserve survey, bankers “reported
eased pricing terms on C&I loans as well as increased demand from small
firms,” SBA officials said in its report. “Demand rose to its highest level
VF Corp., parent to The North
Face, Vans and JanSport, and one of the outdoor industry’s largest companies,
borrowed money to grow this past year — acquiring Timberland and SmartWool in October 2011 for about $2.3
To finance the deal, VF issued $500 million in 3.5
percent rate notes due 2021 and $400 million in floating rate notes due 2013.
Notes are somewhat similar to bonds, and can be viewed as a loan on which the
company agrees to pay back investors on a regular schedule. VF’s floating rate
loan, which will reset quarterly, bears interest at the three-month LIBOR rate
plus 0.75 percent, currently about 1.06 percent. To simplify, it would be like
VF having a 10-year, $500 million fixed-rate mortgage at 3.5 percent, plus a
quarterly, $400 million adjustable-rate mortgage starting at 1.06 percent.
VF officials have said the company “continues to explore opportunities
to add other brands to our portfolio, particularly those in the outdoor and
action sports industry.”
Black Diamond also is in expansion and
acquisition mode. In February, the publically-traded company headed
to investors to raise $63.4 million through a secondary stock offering.
Officials said the money is being used to finance its push into apparel for fall 2013, and for
acquisitions, the first of which is planned for this year.
Diamond also used the money to pay off about $22.4 million of its revolving
credit, to present a healthy financial picture for prospective sellers, CEO
Peter Metcalf said. The move frees up a full line of credit of $35 million,
which combined with the remaining $34.5 million from the stock offering, means the company has nearly $70 million in available funds to
invest throughout the industry. The company has a particular eye in Europe,
Metcalf said, where the aforementioned financial troubles and a fragmented
outdoor market could present some opportunistic deals.
It's also a bit
of a Catch 22 for buyers — the more money flows back into the industry, the more
purchase prices and interest rates will rise. Time for economic contrarians
could be running out.
Investors with money to spend
ahead, more money is on its way into the outdoor industry, according to one
financial analyst, who spoke to SNEWS earlier this year at Outdoor Retailer Winter
D.A. Davidson Managing Director Nathan Pund, who also heads
the firm’s Outdoor Investment Banking Group, predicted in January that 2012
would be a “banner year in mergers and acquisitions, one that could rival 2007.”
Pund told SNEWS that investors and companies have a lot of money on the
sidelines, and they are finally feeling confident to spend it
“After all, it is much cheaper for Adidas to buy Five Ten,” he
said, referring to the November 2011 acquisition, “than for Adidas
to spend years trying to create a brand like Five Ten on its own.”
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in this new financial frontier.