Deckers enters into agreement to acquire Ahnu Footwear

On Jan. 23, Deckers Outdoor Corp. (Nasdaq: DECK) entered into a definitive agreement to acquire outdoor footwear manufacturer Ahnu. Terms of the deal, which is expected to close prior to the end of the first quarter, were not announced. Once the deal is finalized, Ahnu will become part of the Deckers Outdoor portfolio of brands, joining Ugg, Simple, Teva, Tsubo and Deckers.

Though the news temporarily buoyed Deckers’ stock, bumping it up $0.63 to $55.57 during midday trading, the stock dipped to $54.67 by 4 p.m. EST. The stock traded at a 52-week high of $146.60 in April 2008, but is nearly 63 percent off that mark since.

As for Ahnu, the news could not have come at a better time. Jim Van Dine, Ahnu president, confirmed what SNEWS® already knew, that the company had run out of needed capital when the market plummeted in the last quarter of 2008 and was running out of time. Additional investment that Van Dine had counted on from a third round of funding simply evaporated.

While sales were still increasing for the company, it no longer had the necessary cash to pay for production to bring in shoes to fill those orders. Initial attempts to shop the company in late 2008 did not result in offers that Van Dine and his company wanted to accept.

So, he turned to a longtime friend, Angel Martinez, chairman and CEO of Deckers, and a deal was rapidly put together. But don’t for a minute think this was a sympathy deal.

“Ahnu is a brand developed by a talented management team and we are excited to be welcoming them into the Deckers’ family. Along with our already well-established outdoor brand, Teva, the addition of Ahnu will present Deckers with the opportunity to gain additional market share within the outdoor space,” said Martinez.

Added Van Dine, “We have a dream of working together with our friends on building a brand that meets the needs of the market.”

In a conversation at Outdoor Retailer Winter Market with Van Dine, SNEWS was told that he views Deckers as an ideal partner, not just because of his familiarity with Martinez and the company itself (he worked at Deckers in the late ’90s), but because the Deckers company shared the sustainable business ideals and management philosophies that Ahnu was built on. He also noted that Ahnu fits very well into Deckers’ portfolio.

Pointing out that women’s and lifestyle footwear was the company’s strength, he told SNEWS, “We consider ourselves to be an outdoor fitness company much more than an outdoor adventure footwear company. Sure, there is some overlap among the brands, but ultimately we are all working to achieve the same goal — helping our brand and the Deckers company be the best.”

Van Dine, a former cross-country runner and still avid distance runner, told us he likens Deckers’ portfolio to that of members of a cross-country team. Each runner, like each brand, is striving to do his or her very best in every race, working to run faster and finish before every other runner in the race, even those on their own team. However, in doing so, they are also scoring for the team, so in the team competition, every runner contributes to the final results, just as every brand contributes to the corporation’s final results.

“If all of our brands run well, Deckers does well,” said Van Dine.

SNEWS contacted REI, a minority investor in Ahnu since the company’s inception in late 2006, and was told by company representatives that “REI was very supportive” about the acquisition of Ahnu by Deckers and believed Deckers to be “a great partner for Ahnu.”

–Michael Hodgson

SNEWS® View: Yet another company with a strong brand name finds itself the victim of a crashing economy, needing to be rescued from collapse by a larger parent company with financial resources. Like Chaco, Ahnu found itself in the unenviable position of watching a 90-day window of being able to produce and deliver product that was ordered closing simply because it could not pay for the product on the books. While SNEWS recalls Martinez stating sometime in late 2007 that it was on the acquisition hunt, but only for brands in the $100 million range, Ahnu reunites former business partners and good friends. And that bodes well for them both. With Ahnu, Martinez is acquiring a known-entity in Van Dine. Both opened a running store in Alameda in 1979 called Island City Sports. Then, in 1986, while at Reebok, they turned the aerobics category into a No. 1 selling footwear line. By 1995, they had parted ways as business partners, but not as friends. Van Dine was vice president of sales for Simple at Deckers, and then a few years later became vice president of marketing for Deckers.

It was in 2003 that Martinez and Van Dine reunited, joining Rory Fuerst, owner of the Keen brand founded by Martin Keen (he launched Mion with Timberland subsequently). Van Dine became president of Keen, while Martinez was CEO. In 2006, Martinez departed to take over at Deckers, and Van Dine left when Fuerst moved the company from Alameda, Calif., to Portland, Ore., to capitalize on the availability of Nike and adidas footwear design talent and a very business-friendly environment.

In 2006, with $2 million in seed money (REI reportedly contributed up to $500,000, though, neither REI or Ahnu would confirm the amount), Van Dine launched his new company. Various former Keen employees made up the Ahnu management team, including Jacqueline Lenox, Scott McGuire (now with The North Face), Jenny Fredericks, Ed Shollenberger and Jake Brandman.

Sales were on target for $8 million in 2008, which insiders tell SNEWS would have been easily achieved had the economy not collapsed. Instead, we were told sales ended up between $6 million and $7 million. With Deckers’ backing, distribution network, as well as other resources, we would expect that the projections of $12 million in sales for 2009 are not too far off.

As for REI’s stake in the deal, it is likely it will be cashed out as planned once the deal is completed. All profits, if there are any, that REI receives (after administrative costs and its initial investment are accounted for) will not go into REI’s pocket. Instead, the deal called for profits to be donated to a mutually determined non-profit organization. And for that, especially in this economy, REI and Ahnu are to be applauded. It just remains to be seen if the payout is at a gain or at a loss when all things are said and done.

–SNEWS® Editors