Hanesbrands Purchase of GearCo a Logical Move, According to Professor Michael Lord

Hanesbrands agrees to acquire GearCo
Originally Posted on Thursday, August 11| By Fran Daniel
Reposted from Winston-Salem Journal

Hanesbrands Inc. said that it has entered into an agreement to acquire GearCo Inc. for $55 million. It will also assume about $170 million of the company’s debt.

GearCo Inc., known as Gear For Sports, is a private company based in Lenexa, Kan., that sells licensed logo apparel in college bookstores. The company sells embellished licensed apparel under several brand names, including Hanesbrands’ Champion label. Gear For Sports had sales of about $225 million in its 2010 fiscal year that ended in June.

Matt Hall, a spokesman for Hanesbrands, said that Gear For Sports has had a license to sell apparel under the Champion brand in college bookstores since 2001.

“So we’ve had a strong partnership with them,” Hall said, “and we just think it makes sense to bring them into our fold to expand their growth potential and expand our growth potential. It will be a good marriage.”

Hall said that Gear For Sports’ management team will remain in place in Kansas and that the acquisition will not add any new jobs in Winston-Salem.

The deal is expected to close in the fourth quarter. Hanesbrands expects the acquisition to add about 20 cents a share in earnings in the first 12 months after closing, growing to about 30 cents a share in earnings in the second 12 months.

Instead of paying down existing Hanesbrands’ debt at year’s end, the company will use 2010 free-cash flow to pay for the acquisition and retire Gear For Sports’ debt.

Richard A. Noll, the chairman and chief executive of Hanesbrands, said that the acquisition will create value and immediately add to the company’s growth momentum.

“We have significant growth synergies in both the collegiate bookstore channel and our existing retail channels and can take advantage of our low-cost global supply chain,” Noll said. “This acquisition is an excellent way to leverage the growth platform we have just built and create value for our shareholders.”

Mike Lord, a professor of management at Wake Forest University, said that the purchase of GearCo is not a big risk for Hanesbrands.

“It’s not a big-bucks deal, and it’s in an area where Hanesbrands already has a presence,” Lord said. “At first glance, it seems like a fairly logical, incremental acquisition. GearCo is an extension of the same types of products, markets, and customers that Hanesbrands already serves.”

Shares of Hanesbrands stock rose $1.51 yesterday to close at $27.21.