23 December, casual shoe maker Crocs announces $ 2.5 billion purchase of Hey Dude. Investors of the company did not appreciate the decision, Crocs shares fell 12%, to 124 $.
What does it do
Hey Dude is an Italian brand of inexpensive shoes., founded in 2008. Crocs expects, Hey Dude will generate $570 million in 2021 revenue, in the next - 700-750 million. Given the cost of 2.5 billion, the ratio of capitalization to sales will be about four. Crocs has a slightly lower figure - 3,5.
According to Crocs, the new brand will help diversify the line of shoes and improve financial performance: “In recent years, Hey Dude has shown incredible growth in revenue and earnings. We believe, that Hey Dude will accelerate our growth, and the overall business will generate significant free cash flow, which will allow you to quickly reduce debt ".
Details of the deal
To pay for Hey Dude, Crocs to take out $2bn loan. The remaining 500 million will be paid by the company with its own shares..
This loan is a big amount., if you take into account the capitalization of Crocs in 7.5 billion dollars. Crocs now has 640 million liquid assets and 890 million debt, that is, the net debt is 250 million. And this debt will grow almost eight times. Hey Dude's income consolidation will make it easier to pay, but still worth considering.
If companies get regulatory approval, The deal will close in the first quarter of 2022.
Why did stocks fall
According to investment bank Piper Sandler, the fall in Crocs shares is unjustified, because Hey Dude is one of the fastest growing brands. In the past two years, the bank has interviewed teenagers, to find out, what brands do they prefer. So, in the ranking of the most popular brands in 2020, Hey Dude climbed from 54 in 17th place, in 2021 - from 17 in 8th place.
Investors started selling Crocs shares because, unfamiliar with the new brand and concerned about the sustainability of its growth, count at Piper Sandler.
Even with the recent drop, Crocs shares are up by 93%, over the past five years - by 1700%. In 2020, when people started spending more time at home, Demand for comfortable casual shoes has increased. As a result, Crocs sales have grown by more than 50%.
Crocs revenue, million dollars
| 4к2019 | 263 (+22%) |
| 1к2020 | 281 (−5%) |
| 2к2020 | 332 (−8%) |
| 3к2020 | 362 (+16%) |
| 4к2020 | 412 (+57%) |
| 1к2021 | 460 (+64%) |
| 2к2021 | 641 (+93%) |
| 3к2021 | 626 (+73%) |
263 (+22%)
