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February 2, 2024

Breakingviews: Basketball-maker will bounce back from IPO brick

by 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 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 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 and Adidas.

Lululemon, Nike and On 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 home healthcare provider BrightSpring Health Services 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, Nike and Apple tend to be rewarded for expansion in China, adding to the reasons why Amer’s shares probably will bounce back.

 

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.

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