Digital Gives Action Sportswear and Activewear Brands a Fashion Makeover

What’s the new face of acquisition and investment activity?

August 4, 2015

Today’s technology-driven culture is transforming the way we communicate, dress, and stay fit. Wearable technologies and smart fabrics are hot and getting hotter. This new activewear is designed for those who live an active lifestyle and are acutely fashion-conscious—who said you can’t look good breaking a sweat? It’s everywhere—women are wearing activewear from 6 a.m. to 6 p.m. and beyond.

Smart fabrics that provide immediate training and performance feedback are the new buzz for active consumers and determined athletes, creating a category that has sparked significant interest and excitement across the investment community. With such attention, numerous lifestyle brands have entered the wearable tech sector, launching activewear lines that are literally getting a sales workout! Smart Watches, pedometers, and smart fabric wearables are on a mission to combine health and wellness with great design, while attractive customer demographics and strong brand loyalty are drawing the attention of the venture capital and private equity communities.

Product innovation coupled with continuous technical advances have improved the overall performance characteristics of functional fashion-forward activewear, making this sector extremely attractive to investment. Success stories abound, such as those of Under Armour and its entry into the wearables sector with the acquisition of MapMyFitness; Columbia Sportswear’s acquisition of prAna; and, of course, Fitbit, who just filed to go public, representing the most recent example of the attractive exit options available to investors backing this trend.

Fashionably Innovative Brands Are Omni-Channel Aware

Equally importantly, action sports and activewear brands have been early adopters of omni-channel marketing. They understand engaging in active dialogue with consumers means providing true continuity in their shopping experience, regardless of the channel selected. Omni-channel is about the choices consumers and brands make in how they engage with each other. Regardless of whether the buying experience starts online, in a physical store, via a mobile app, a brochure, a phone call, or through social media, activewear brands increasingly aim to provide consumers with a rich experience that is consistent across all platforms.

Traditionally fragmented, the action sportswear market has seen widespread consolidation led by major global players. Authentic, niche, and iconic brands are now being acquired by large global brand aggregators and the private equity community. While the U.S. continues to be the dominant market, an increase in international health and wellness demand has sparked cross-border acquisition activity, with private equity sponsors and strategic acquirers building their brand portfolios to address consumer preferences. Strategic acquirers with global distribution structures and deep marketing expertise are aggregating brands to increase scale and drive margin improvement.

Technically innovative and fashion-forward brands like Finland’s Amer Sports, a sporting goods company with internationally recognized brands that include Salomon, Wilson, Atomic, and Nikita (its women’s-only street and activewear brand) is making a real statement with its lifestyle apparel.

Brand Consolidation and eCommerce Is Fueling Industry Activity

The past 12 months have witnessed a strong uptick in apparel M&A activity, led primarily by street and action-sports brands. Private equity firms like Silicon Valley-based Altamont Capital Partners (ACP) are focused on making several high-profile investments with widely recognized action sports and apparel brands such as Fox Head, Hybrid Apparel, HUF Worldwide, Dakine, and Mervin Manufacturing.

We recently advised on one of the largest and most strategic transactions in recent action sports and apparel industry history. In a highly synergistic transaction, we helped Hybrid Apparel, a leading supplier of branded, licensed and private-label apparel, team up with ACP to acquire Fox Head, the legendary designer, marketer, and distributor of motocross apparel and accessories. The transaction brought together key core competencies of the three parties, creating a powerful new player in the sports apparel and branded activewear market.

Another recent example includes the investment in HUF Distribution Corp. (HUF) by ACP. We helped find HUF a partner that understood and appreciated their culture and aligned with their vision for the company’s future. HUF is a highly respected and authentic brand in the marketplace. This entrepreneurial brand has become one of the leading designers and manufacturers of skate, streetwear, and sneaker goods worldwide.

Moreover, eCommerce has been a lead influencer of M&A activity and valuations in this space. One has to look no further than the $1B plus valuation received by JustFab, a lifestyle fashion company that offers engaging and personalized shopping experiences to over 35 million members worldwide through its portfolio of brands. Channel shifts also continue to drive spending from brick-and-mortar to online with valuations strongly favoring brands faring best in omni-channel distribution. This eCommerce shift continues to place additional margin pressure on traditional retailers, balanced by the CAPEX needs of an effective omni-channel system.

Southern California, the Epicenter for Action Sportswear

The West Coast, most notably Southern California, has been the epicenter of much of the U.S. activity in action sportswear and activewear M&A. We feel that this is only the beginning. Health and wellness programs like yoga, crossfit, spinning, and barre (the hottest trend in workouts that focuses on a combination of postures inspired by ballet, yoga and Pilates) have fueled high demand for activewear apparel and brands.

Activewear is currently a $34B business and the surf and skate apparel sectors alone surpassed $7.5B in revenue. M&A activity in the industry is set to exceed expectations, as the added potential of wearable technology is not only redefining the definition of clothing and health and fitness, but also enabling personalized mobile information processing to become part of this lifestyle fashion. We believe these trends will continue to drive new business formation and brand launches, and together with robust M&A activity, will redefine the landscape in lifestyle apparel in the coming years. As a hotbed of fashion, digital media, and fitness, California will continue to lead this transformation.

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