Crocs Inc to acquire Hey Dude Shoes Company

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Crocs Overview

Crocs is a publicly owned, US based company that was founded in 2002 by the founder Samuel Thomson. Its current CEO is Andrew Rees. It specializes in the manufacture and marketing of Crocs, which are globally known as foam clogs. These are light weight shoes that come in different designs, and are available for any target audience.

The company holds offices in the US, Netherlands, Shanghai, China and Singapore and has a team of more than 4000 employees. Its strategy demonstrated success right from the initiation as it had sold 720 million pairs of shoes in 2002. Throughout the years, the company followed up with annual sales exceeding $1billion, which proved to be a major success for the company as it marked the brand as one of the world’s 10 largest non-athletic footwear brands.

The company announced its growth framework from its 2021 Q3 report. The new framework included focus on digital, sandals, product & marketing innovation and a focus on the Asian markets. Indeed, it has planned to earn more than 50% in 2026 in revenues from digital sales (equivalent to 4x revenue growth). Moreover, Crocs identified Asia as the greatest market opportunity for the brand in the long term. This is because of the high leverage created from celebrities and influencers, collaborations, strong digital growth, and China’s identification as the 2nd largest footwear market in the world.

Crocs’ revenue has shown strong growth for the year 2021, regardless of the COVID19 pandemic. The market segment in which most revenues are earned are the Americas, followed by EMEA and Asia Pacific. One of its strategy is now to expand its portfolio with different shoe designs. The company recorded a rise of direct consumer sales of 60.4%, increased whole sale revenue of 88.2% and digital sales of 68.9% for Q3 2021.

Hey Dude Overview

Hey Dude is a privately owned, Italian based company that was founded in 2008 by current CEO and founder Alessandro Rosano. It specializes in the manufacture of comfortable and lightweight shoes that are stylish, comfortable and affordable. The manufacturing of these shoes are advertised as being sustainable from the use of recycled “open-cell eva foam”, “recycled plastic”, “recycled leather”, and « organic cotton ».

The company gained success quite fast based. In 2009, the first pair of shoes were sold in the market. This was quickly followed by the opening of multiple branches in Eastern Asia, Europe and South America. In 2011, it had recorded sales of 1 million pairs world wide. In 2018, it then recorded 5 million pairs of shoes sold worldwide.

Hey Dude operates with more than 40% of its business online, and reported around $570 million of revenue this year. According to the CEO,  expected sales for the year 2022 are quite positive, as it estimates around $700 and $750 million of revenue. In addition to its positive outlook, according to Investment Bank Piper Sandler, the company was ranked number 8 in a fall Survey as one of the fastest rising brands.

According Logical Position (a digital marketing agency which collaborates with Hey Dude for social media marketing) Hey Dude exponentially grew its monthly revenue via efficient paid conversions. After testing out different marketing strategies, Hey Dude went from using 4000 paid search conversions in 2018 and 250000$ in revenue per month to 96000 paid search conversions in 2021 and $7 million per month. The result showed success for the future strategies of the company in relation to digital sales and marketing.

Deal Purpose

  • The purpose of the deal is to enable robust sales growth, particularly in the North East of the US and other costal urban regions. Crocs also announced its plan to expand its shoe portfolios.

Deal Outcome & Synergies

  • Expected robust sales growth, with Crocs planning to generate $5 billion in sales by 2026 and more than 17% in CAGR in the next five years.
  • $2.5 billion acquisition in cash-and-stock.
  • Deal to enable diversification and security to investors, while still keeping the iconic brand of Crocs individual from the new brand.
  • Hey Dude expected to generate $570 million in revenue this year.
  • Sales forecasted between $700 and $750 million.

Deal Summary

Deal Structure

  • Acquisition of Hey Dude for $2.05 billion in cash-and-stock.
  • $400 million in Croc shares to be issued to Hey Dude’s founder and CEO.
  • Cash consideration to be paid by Crocs from a $2 billion term loan B and $50 million borrowal under its existing senior revolving credit facility.
  • Hey dude expected to operate as a stand alone division post acquisition.
  • Expected accretion to Crocs revenues, earnings and operating margins for the year 2022.
  • Crocs expected to deleverage at a fast pace through the acquisition, which should be driven by additional cash flow generation and margin growth.

Expected Synergy Date: Q1 2022
Expected Accretive/Dilutive Date: Q1 2022

Sources

https://www.cnbc.com/2021/12/23/crocs-ceo-defends-2point5-billion-hey-dude-acquisition-as-shares-tumble-.html

https://finance.yahoo.com/news/crocs-crox-stock-dives-agreement-122812290.html

https://investors.crocs.com/news-and-events/press-releases/press-release-details/2021/Crocs-Inc.-to-Acquire-Casual-Footwear-Brand-HEYDUDE/default.aspx

https://www.reuters.com/business/retail-consumer/crocs-buy-footwear-brand-heydude-25-billion-2021-12-23/

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