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Edgy clothing maker Volcom Inc. is set to rub shoulders with luxury brands Gucci and Yves Saint Laurent with a pending sale to France’s PPR SA.
PPR said last week it plans to buy Volcom, a maker of clothes inspired by action sports, music and movies, for $608 million.
The deal, expected to close in the third quarter, values Volcom at 40% more than its average share price for the past three months.
The buy stands to make Volcom an anomaly among PPR’s stable of upscale brands.
Volcom is set to be part of PPR’s sport and lifestyle group, dominated by German athletic shoe, apparel and accessories company Puma AG.
For PPR, the acquisition is consistent with its goal to grow its sport and lifestyle group.
“Volcom is one of—if not the—leading global action sports brands with a 20-year heritage,” PPR Chief Executive Francois-Henri Pinault said during a call with analysts, investors and reporters last week.
PPR is looking to gain younger customers with the deal.
For Volcom, being part of PPR stands to bring swifter global growth, an expansion into shoes and more Volcom stores.
“PPR is the perfect partner to help take the Volcom and Electric brands to the next level of success,” Volcom founder and Chief Executive Richard Woolcott said in a statement.
Woolcott is expected to stay with Volcom after the deal closes. He’s one of the big winners in the buyout—Woolcott’s 2.5 million shares in the company are worth about $60 million in the deal, before factoring taxes and costs to exercise options.
Volcom executives outlined a plan last year to take the company to $550 million in revenue, a 50% gross profit margin and an operating margin of at least 15% by 2014.
France’s PPR paying $608 million to buy Costa Mesa-based Volcom
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It’s likely Volcom, with $325 million in yearly sales now, could meet those targets on its own, according to analysts and industry watchers. Being part of PPR could shorten the time it would take to reach those goals, they said.
“It gives them the capital and the resources through PPR to fully develop their business and really realize the global potential of their brand that, over time, they could have achieved by themselves,” said Mitch Kummetz of Milwaukee-based investment bank Robert W. Baird & Co. “Partnering with a bigger entity will accelerate that.”
The question now is whether Volcom can keep the upstart cachet embodied in its “youth against establishment” tagline.
That remains to be seen, according to Kummetz.
“People were asking that question when they went public,” he said. “They asked that question when they started selling to” big retailers such as Anaheim-based Pacific Sunwear of California Inc. and Cincinnati-based Macy’s Inc.
Volcom’s growth hasn’t hurt the brand so far, according to Kummetz.
PPR’s initial strategy is expected to be a hands-off approach focused on international growth for Volcom.
Volcom is set to continue handling its own manufacturing, sales, design and other operations.
“When a new brand is welcomed in our group, we keep its DNA. We keep its autonomy,” PPR Deputy Chief Executive and Chief Operating Officer Jean-François Palus said during last week’s conference call.
Volcom long has been considered a startup success story in an industry filled with hopefuls and casualties.
It started in the bedrooms of Woolcott and cofounder Tucker Hall in 1991. Volcom went public in 2005, making it the last among the county’s crop of action sports brands to do so.
Industry players give Volcom marks for maintaining authenticity, which is critical to remaining cool among fickle teen shoppers.
“The way you stay relevant is being true to who you are,” said Johnny Schillereff, founder and president of Irvine-based skateboard and apparel company Element during a panel at the International Association of Skateboard Companies’ annual conference a week before the sale to PPR was announced. “Volcom’s actually proved that quite well. If you wait, good things can happen.”
Element, part of Irvine-based Billabong USA, sells skateboards and skateboarding-inspired shoes and clothes.
Staying relevant among skaters, surfers and snowboarders—dubbed “the core” in the industry—is a challenge all companies face as they grow.
“The trick when you get to a company of our level is to keep up the cool factor,” Volcom Executive Vice President of Sales Tom Ruiz said during the same industry panel. “How do you stay relevant? I think that’s the trick we all have to understand. It’s a balancing act but at the end of the day, you have to be relevant at the core.”