Basketball-maker will bounce back from IPO brick

On Holding AG

01/02/2024 17:36

(The authors are Reuters Breakingviews columnists. The opinions
expressed are their own.)
    By Sharon Lam and Jeffery Goldfarb
       TORONTO/NEWYORK, Feb 1 (Reuters Breakingviews) - If any
company knows how to rebound from an ugly brick shot, it should
be one in the basketball business. Amer Sports badly missed on
the pricing of its initial public offering, despite having an
all-star roster of Goldman Sachs, Bank of America, JPMorgan and
Morgan Stanley on its team as underwriters. The owner of the
Wilson, Salomon and Arc’teryx brands sold shares at just $13
apiece, below a marketed range of $16 to $18, valuing it at
about $6 billion. Fears about its dependence on China are
overblown, however, and make the investment a slam dunk.
    Amer has upped its game since the Finnish outfit was bought
in 2019 for about $5 billion by a group that includes Chinese
sports equipment giant Anta Sports Products  2020.HK  and
Lululemon  LULU.O  founder Chip Wilson. It increased revenue in
Greater China, which generates higher operating margins than the
company’s overall, by some 60% a year between 2020 and 2022, to
nearly $525 million, and by 68% again during the first nine
months of 2023.
    Growth isn’t limited to the home market of its main backer,
though. European sales of Salomon ski gear rose 30% in the first
nine months of 2023 from a year earlier and accounted for
roughly half its top line. In the United States, the company
doubled the amount it makes from wholesale partner Dick’s
Sporting Goods  DKS.N  in the three-year span to 2022. And
Amer’s adjusted EBITDA margin of nearly 14% in the year through
Sept. 30 falls short of Lululemon’s 25% last year, but it is on
par with those of Nike  NKE.N  and Adidas  ADSGn.DE .
    Lululemon, Nike and On  ONON.N  trade at roughly 20 times
expected EBITDA for the coming year, according to LSEG. Some
discount to that multiple is warranted because of Amer’s
indebtedness and the slower-growing Wilson unit, but the 10
times multiple imputed by the IPO is too miserly. Nagging
investor trepidation about new stocks is partly to blame.
KKR-backed  KKR.N  home healthcare provider BrightSpring Health
Services  BTSG.O  was forced to accept a lower price than it
wanted last week, and even then its shares tumbled after they
started trading.
    For Amer, there is the added worry about dependence on
China, both for sales and supplies, including the possibility of
expanded U.S. tariffs or other investment restrictions. The
country’s struggling economy also might curb purchases of
unnecessary items like tennis rackets. Such concerns look mostly
short-sighted. Amer’s growth is worldwide and its products
hardly present any sort of threat. Companies like Starbucks
 SBUX.O , Nike and Apple  AAPL.O  tend to be rewarded for
expansion in China, adding to the reasons why Amer’s shares
probably will bounce back.
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    CONTEXT NEWS
Amer Sports said on Jan. 31 it raised about $1.4 billion in its
U.S. initial public offering after pricing its shares at $13
each, below its marketed range of $16 to $18, valuing the
company at about $6.3 billion.
    In 2019, Amer Sports was acquired by a group that included
Anta Sports Products, FountainVest Partners, Anamered
Investments and Tencent.
    The shares are due to start trading on the New York Stock
Exchange on Feb. 1.

 (Editing by John Foley and Aditya Sriwatsav)
 ((For previous columns by the author, Reuters customers can
click on  LAM/ 
sharon.lam@thomsonreuters.com; Reuters Messaging:
sharon.lam.thomsonreuters.com@reuters.net))