Nautilus acquires Canadian Bowflex distributor to increase brand leverage

In a move that’s been an industry whisper since last summer, Nautilus Inc. (NYSE: NLS) has acquired Belko Canada, its Bowflex and Schwinn distributor since 1996.

In the deal, Nautilus acquired certain assets and assumed certain liabilities of Winnipeg-based Belko for approximately $5.5 million in cash. Terms were not disclosed, but one analyst estimated it at 0.5 times sales.

“By further leveraging an organization we know very well, we are positioning ourselves to offer a full line of quality fitness products wherever Canadian consumers shop and exercise,” Nautilus CEO Gregg Hammann said in a statement.

Later, Ron Arp, Nautilus senior vice president, told SNEWS® that the deal was an opportunity to continue growth in both direct and at retail in Canada as well as in the specialty and commercial channels where he said the company feels it’s been underrepresented.

“We anticipate expanding our employee base to accommodate growth in Canada,” Arp said, noting that the Belko operation was moving to a new 31,000-square-foot facility that is 2.5 times its current location. “For the most part, only our Bowflex brand has been leveraged in Canada, so this gives us additional opportunities with a proven marketing and distribution organization in Canada.”

Belko has been the exclusive distributor north of the border for the Schwinn and Bowflex brands, while Belko, founded by Don Carson in 1984, has also distributed other products, although less so of late as the Nautilus business increased for him. The others have included Healthrider products in the ’90s, Horizon until about a year ago, as well as a few others, including Danskin equipment, all of which have or will redirect their business. Nautilus said that Belko represented about 2 percent of total Nautilus 2004 earnings.

Belko (www.belkofitness.com) also operated a call center in Winnipeg to support Bowflex direct sales (www.bowflex.ca). Belko founder Carson will become Nautilus vice president of specialty, commercial and direct sales for Canada.

“I’m looking forward to working with the company’s leadership to expand our distribution into the specialty and commercial channels, in addition to direct and retail channels,” Carson, a former school teacher, said in a statement.

The acquisition is expected to be accretive to earnings in 2005. According to RBC analysts, the deal “should improve the economics of its existing Canadian business (direct and retail) with minimal risk.”

“We’ve been studying growth plans in Canada for some time,” Arp added, “and we feel now that we’ve restored growth fundamentals to our overall business that it’s time to look at moves that strengthen our business.”

Nautilus stock prices closed on May 6, the day the news was announced, at 26.74, even with its close on May 5. The day’s volume was 480,700.