The surfs of capitalism are a-froth down under, where action sporting goods developer Billabong in recent weeks has found itself courted by Mitt Romney’s Bain Capital and a rival private equity enterprise, TPG Capital, both of which eyed plans to acquire the ‘Bong, buff out its financial dents, slap on a new coat of paint and present a trimmer, more profitable extreme enterprise to the capital markets. Billabong, purveyor of the eponymous boardshorts supplier as well as tree-hugging-and-then-cutting-down skateboard maker Element and the glasses company Von Zippa, already has mapped out a path to enhanced earnings power but the investment mavens of the private equity world bring to the table their own ideas. Boil the Ocean has put its own venturing capital war-chest away in the attic in favor of more economically conservative armchair critiques of the contemporary scene, but nonetheless proffers a few strategic alternatives that Billabong’s management squad and its new partner may take under consideration in this heady season of risk-taking and risk-making.
Incentivize multiple disciplines among RVCA signess. The unpronouncable alternative sporting clothes unit already keeps one foot on the board and the other in the proverbial octagon of mixed ultimate fighting, a scenario that represents an elixir for investors thirsting after operational synergies. Thought leaders such as Jason Ellis already have paved the way for pro skateboarders to test their capacity for head injuries within the fighting pits of Las Vegas and elsewhere, and RVCA already counts within its skate ranks well-known aggressor types such as Kevin ‘Spanky’ Long, Josh Harmony and Nestor Judkins.
Set an aggressive hurdle rate for Mike V’s next contract with Element. Multiple stints with Powell and a record of high attrition among his own hardgood ventures virtually ensure that Mike V has another nature-future ahead of him at some point, plus he already got the tattoo. Vallely’s ceaseless grind, grassroots efforts to reach the kids and willingness to tackle new projects like pro wrestling have seen his board-selling abilities endure, but striking a deal that would require a certain number of pachyderm-printed decks, wheels and shoes to move before alotting incentive pay would be one way to maximize income before Mike Vallely roams on toward life’s next green pasture.
Sell more $46 t-shirts. New Billabong CEO Launa Inman last month identified a AUD40 million sales target for the Element, Da-Kine and RVCA brands. At the current conversion rate, you would only have to sell 909,091 such shirts to make up the difference, compared to about 2 million regular shirts at like $20, less than half the work.
Harness Element’s ‘back to nature’ vibe. “Just to give you a little bit of a sense, Element is very much a skate brand. It’s all about urban,” said CEO Inman, remarking to analysts on a conference call last month. “It’s a brand that has done well in America, we just need to refresh it.” This makes sense — the U.S. launched ebonics, rap music and the career of Keith Urban. However, it leaves another segment of the marketplace untapped: rural. The hinterlands match up well with Element’s rootsy ethos but there is also a smart business move to be made here, as there seem to be far less competitors. Google returns about 127,000 results for “urban lifestyle brand” compared to just 4,200 for “rural lifestyle brand.” There may also be opportunities for a smaller, more nimble retail competitor to entrenched big-boxers such as Fleet Farm, Farm & Fleet and Runnings’.
Avoid global financial crises when possible. Responding to a shareholder query in August, Billabong CFO Craig White acknowledged that the worldwide financial meltdown of 2008 may have set the parent company back some 10 years in terms of earnings, which had to be a bummer. Now the European sovereign debt crisis is afflicting Billabong’s wholesaling business in that region, all of it highlighting the import of extraplanetary diversification.
Tags: activist investors, AUM, Bain Capital, BBG.AX, Billabong, element, equity private, Future Nature, heady, Josh Harmony, Mike Vallely, rural lifestyle accommodations, RVCA, Spanky, the Aussie, the Octagon, TPG