Thursday, August 30, 2007

'Pop' Goes the Private Equity Bubble...

From the NY Times Dealbook Blog:

Hear that sound? That was the private-equity bubble finally getting pricked on Thursday, as the market for debt — the jet fuel that had propelled it to dizzying heights — slammed shut.


What does this mean for the outdoor and snow sports industry?

From the folks I've spoken with, it means that the astronomical valuations for acquisitions are a thing of the past. If you own a small business, and you've been waiting for the right deal to cash out, you're probably too late. At this time last year, if your company had $20 million in sales, it would not be unreasonable to see $25 up to even $40 million from a private equity firm, if they thought the future growth and cash flow were right. Today, you'll be lucky to get $21 to $22 million.

This also means the door is wide open for strategic buyers - folks like Jarden (k2's parent now) and Timberland, who are acquiring smaller brands for strategic purposes (other than making loads of cash for their investors).

In an interesting side note, Dick Heckman, former president of K2, filed an amended statement with the SEC regarding his "blank check" IPO. He now expects to raise over $400 million for an acquisition war chest with no firm targets. Basically, he is asking Wall Street investors for a $400 million check to buy whichever company he sees fit. There's no word on whether or not he'll be returning to the outdoor or snow sports industry with this money, but we'll be keeping our eyes on him.

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