The Biggest Acquisition Of Clothing Industry! Hand In Hand Tencent, Buy Amer... 37 Billion What Kind Of Future Can Anta Make?

The "Arc teryx" outfit with a starting price of 4000-6000 yuan is called "Hermes" for sportswear in outdoor enthusiasts.

At the moment, Anta is seeking to buy its parent company AmerSports for 37 billion yuan, while Tencent is said to be joining the biggest acquisition in China's apparel industry.

From being questioned to turning losses into profits and becoming Anta's growth engine, FILA spent 8 years in Anta's development before it finally came to fruition.

After becoming the top sports brand in China, Anta continues to search for new brands to achieve internationalization and brand upgrading. Can AmerSports buy it?

If the net profit is measured in 2017, the acquisition price earnings ratio is 50.5 times higher than that in the case of a slight increase in Amer revenues and a sharp drop in net profit. This offer is not only high, but also 21.8 times higher than Anta itself.

And the acquisition cost of 37 billion yuan is equivalent to 4 of the market value of Anta. The full cash acquisition will bring huge financial cost pressure. These difficulties are no less difficult than Anta's integration of Amer and the development of the market. How will Anta resolve it?

(02020.HK) the acquisition of AmerSports (AMEAS.FH, referred to as "Amer") of the famous outdoor brand parent company has new variables.

Once the total potential price of 4 billion 660 million euros (37 billion 100 million yuan) is realized, it will become the largest foreign mergers and acquisitions in China's apparel industry.

In November 14th, Bloomberg quoted sources as saying that technology giant Tencent Technology (00700.HK) intends to join Anta AmerSports's takeover consortium.

Stimulated by news, AmerSports's stock price jumped more than 5% in early trading, which was $35.88.

On the 15 day, Anta's share price also rose by about 3%, closing at 34.65 yuan / share.

Before the Tencent's accession to the Amer, the market did not seem to be optimistic about Anta's performance this year and the takeover.

In August 14th, Anta sports announced its half year results.

Compared with the annual growth rate of 20% in recent years, Anta sports revenue reached 10 billion 550 million yuan in the first half of 2018, an increase of 44.1% over the same period last year, the highest revenue growth rate in nearly 10 years.

Despite its brilliant performance, the market seems to be in no way to buy it.

On the day of the announcement of the earnings report, Anta's stock price did not rise or fall, and plunged more than 10%, hitting the biggest drop in the single day this year. The market value evaporated more than HK $10 billion and fell below 100 billion mark.

In September 12th,

Announcing the acquisition of AmerSports, a listed outdoor sporting goods company in Finland, with a cash price of 40 euros / share, it is expected to purchase all its shares with 4 billion 660 million euros in cash.

But after the announcement, Anta's share price went up and down in September 13th and fell by 9.15% worldwide.

As of October 12th, its share price has dropped to HK $31.9 / share, and its market value has shrunk to HK $85 billion 500 million.

Whether it was short selling of GMTResearch in June, or the acquisition of AmerSports was empty, all showed concern about Anta.

Has it become the turning point of its performance after becoming a top sports brand in China?

From FILA to AmerSports, Anta's acquisition has its own logic.

and

In the brand upgrading of the "knock" different, Anta is better at borrowing external force, with mature foreign brands to open up the high-end market.

The acquisition of Amer can not only find new growth points, but also catch up with the two giants of Adidas and Nike, and realize the internationalization of "curve".

Such success is not impossible. FILA is the best proof.

In the face of more complex business integration and more brand Amer, can the experience of FILA be copied on Amer?

First of all, let's see how FILA has "brought the dead back to life" in Anta's hands.

FILA in Anta's hands

Anta gets it from BELLE.

In China, the market is not optimistic.

Founded in 1911, FILA was the first to produce and sell underwear.

In the 70s of last century, FILA invited Japanese designer Yi Xin to design the iconic red and blue F- box Logo, and began to expand the production line of sportswear.

And FILA began to make a lot of noise from the sponsorship of the tennis player Bjorn Berg (Bj rnBorg), who was known as the Swedish champion, and Reinhold Messner (ReinholdMessner), the "Italy mountaineering emperor" who boarded the Mount Qomolangma without oxygen supply.

Berg has won the six French Open champion and the five Wimbledon champion in FILA's tennis series, which has made the brand a glorious era in 1970s.

Today, FILA has covered high-end products such as golf, tennis, fitness, yoga, running and skiing.

As a famous Italy Centennial brand, FILA entered the Chinese market in 2005, but it did not go smoothly at the beginning. In 2008, it had about 50 stores in China, with a loss of 39 million yuan.

Prior to the acquisition of FILA, Anta represented Adidas, Reebok and Kappa in 2006-2007 years.

In 2007, its own Anta brand revenue accounted for 93.9%, while the international brand (Adidas, Reebok, Kappa) accounted for 6.1% of the revenue. By 2008, the international brand share fell to 3.02%, and Anta's brand revenue accounted for 96.98%.

In 2006 and 2007, Anta international brand retail business lost 5 million 500 thousand yuan and 5 million 600 thousand yuan in a row, plus ADI's intention to reclaim agency power. In 2008, Anta sold Adidas, Reebok and Kappa's three international brand retail businesses at 5 million 974 thousand yuan.

In 2009, Anta purchased the Italy sports brand FILA's franchise and trademark rights from BELLE in the total price of 332 million yuan, and was responsible for the promotion and distribution of FILA products in mainland China, Hongkong and Macao. The price was equal to BELLE's price base in the second half of 2007 when it acquired FILA.

Through this acquisition, Anta will not only get the trademark, operation and distribution network of FILA in Hongkong, Macao and the mainland, but also participate in the development and production of FILA products.

Because of FILA's loss in China, Anta's acquisition was not initially viewed by the market.

On the day of the announcement, Anta's share price fell slightly.

Many analysts believe that the advantages of BELLE group's products and channels were mainly reflected in women's shoes, and lack of experience in developing international sports brands in China, so the market development was not successful.

Although Anta, who holds the plate, is in the field of sports, but it also faces challenges. FILA is an international brand of high-end fashion sportswear. It has great differences in positioning and distribution channels between Anta and the main middle and low functional sportswear.

From a market positioning perspective, with high-end high-end

Compared with Anta, Anta does not have much advantage; in terms of distribution channels, Anta is even inferior to BELLE.

BELLE failed, can Anta do that? Not only that, but at the time, it was widely believed that FILA's layout in China was at least three to four years behind that of the Kappa with similar market positioning.

Although not optimistic, Anta said it was precisely because of the unsatisfactory international agency's performance that the group decided to focus on sports apparel brand management business instead of "dressing up" for others.

Compared to risks and challenges, Anta sees more of the multi brand imagination that FILA bought.

Throughout the history of sports shoes and clothing industry, the development of multi brand group is the only way after a single brand reaches a certain volume.

After the 2008 Beijing Olympic Games, Anta realized that China's sports industry will have a new turning point. Too single brand structure or market will be phased out quickly. Finding new growth points is imminent.

With the accession of FILA, the diversification effect of Anta gradually emerged after 2009. In 2013, the revenue of Anta's main brand declined to 79.97%.

Since 2014, Anta has no longer disclosed the specific revenue of its brand in its annual report, which is divided into footwear, clothing and accessories.

(for example)

UBS Securities pointed out that in the first half of 2014, Anta's profit increased by 28% over the previous year, exceeding 53% of the profit forecast, which was mainly due to the rapid growth of FILA business, and its sales grew by 22% over the same period last year. Compared with the balance of payments in 2013, the management hoped that FILA could start to profit from 2014.

Facts have proved that after 2014,

Gradually become the performance driver of Anta.

Oriental Wealth securities research report pointed out that since the fourth quarter of 2017, FILA has maintained a high growth rate of over 80% for 3 consecutive quarters; the store efficiency has increased from about 400 thousand yuan at the end of 2017 to 2018 yuan in the first half of the year. It is estimated that the sales of FILA in the first half of 2018 will rise to about 37% from 28% at the end of 2017, and the annual compound growth rate of FILA will reach 52.4% from 2018 to 2020.

From being questioned to turning losses into profits, becoming a performance driver and growth engine, what has gone through this? What magic has Anta done?

All-round pformation of location, channel and marketing

What exactly has FILA done in Anta's hands?

First of all, strategic positioning is forward-looking.

In 2011, FILA made a strategic change in the Chinese market with a keynote significance, that is, "return to fashion".

The reason for the "return" fashion is that FILA was first fashions based on sportswear.

In 1970s, the most glorious period of FILA was realized in the context of fashion oriented sportswear, among which tennis apparel is the most representative.

In 1973, FILA pioneered the bold use of color strikingly pattern in sportswear, and realized the fashion change of tennis apparel.

But after that, FILA deviated from the leisure fashion and focused on the field of professional functional sports.

And when the market trend shifted from functional to fashion, FILA, who returned to fashion in advance, was once again on the wind tunnel.

It was also in 2014 that when the athleisure emerged in the world, FILA achieved a turnaround in China.

After FILA's Chinese business was taken back, Anta gave the former a huge independent operating space.

Including product design, sales channels, supply chain and marketing, FILA has made corresponding adjustments to all aspects of the Chinese market.

In terms of product design, FILA has enhanced the style design that complies with the characteristics of Asian people.

Since the end of 2015, FILA has launched a series of advanced sports apparel from the famous American Chinese designer JasonWu, from tennis clothing to swimming pool slippers. Many classic styles of the brand in 1970s have been re interpreted.

External evaluation, sports and fashion brand positioning, in JasonWu's joint design section is the best.

In addition, Yao Weixiong, President of FILA Greater China, has made it clear that in addition to design factors, innovation is one of his most important indicators in the product segment. "I require less than half of the innovative fabrics for every season, which falls on the KPI of commodity teams, planning teams and production teams.

Second, the ratio of imported materials should be no less than 40%.

In addition to the original two categories of FILA and FILAKIDS, in June 2018, FILA released the trend sports brand FILAFusion to enter the new generation market.

It adopted the new model of "1+N", that is, under the premise of taking FILAFUSION as the main line, it launched various cross-border cooperation series with different designers or brands to further extend the tentacles of the fashion layout.

FILAKIDS, which has attracted much attention from the market, has launched a new Milan Garden Children's wear series in the first half of this year.

In addition to the original products such as FILARED, FILAWHITE, FILAORIGINAL and FILABLUE, FILA has launched JasonWuXFILA and FILAModernHeritage Series in the first half of 2018.

In operation adjustment, the most prominent change lies in channels.

Anta took three years to recover almost all the FILA brands from Chinese dealers and changed them into a direct camp mode.

Official data show that the proportion of FILA in the Chinese market has been more than 80%, forming flat management from headquarters to the retail end.

The advantage of the flat mode is to respond quickly to the market consumption trend, which is very important for a sports brand that is positioned in fashion.

In addition to the establishment of the direct camp mode, FILA also restores the high brightness decoration design and display layout to the shops, abandoning the reserved style of the general sports shops to enhance the sense of fashion.

The increase in the proportion of direct battalions has also brought about an increase in gross margin.

Anta's 2014 annual report shows that its gross margin is much better than that in 2013 because of the higher gross margin of FILA brand products.

Anta's 2016 performance report also showed that the gross profit margin of clothing categories increased by 3.2 percentage points to 51%, and the gross margin of the company rose by 1.6 percentage points to 48.4%, due to the increase in FILA sales share.

Finally, in the marketing layout, FILA takes the entertainment and fashion stars as the main way to promote the audience resources in the middle class from 20 to 45 years old.

Since its acquisition of FILA, Anta has increased its endorsement and sponsorship efforts, from its original emphasis on "athlete marketing" to the strategy of traffic entertainment stars, and collaborated with fashion stars such as Hsu Chi and Gao Yuanyuan. In 2018, it signed the popular star Wang Yuan as its spokesperson, focusing on enhancing the brand exposure rate.

In addition, FILA has sponsored a variety show "Daddy where to go", trying to reduce the age of the consumer group, and win over the children's brand FILAKIDS.

From the initial doubt to today's revitalizing, Anta's experience in FILA has perfectly demonstrated how the domestic brand will "localize" after acquiring foreign brands, and make changes from the channel and marketing to product positioning.

And whether this experience can be copied on Amer? Let's see why Anta chose to buy Amer.

50 times high price acquisition, Anta's inflection point

In September 12th, Anta sports confirmed that with the private equity fund's capital source, it issued a non binding initial intention to the AmerSports listed in Finland. It bought all its shares at 40 euros per share and the total price is expected to be 4 billion 700 million euros (37 billion 500 million yuan).

In 2017, Amer revenue increased 2.4% from 2 billion 622 million euros to 2 billion 685 million euros, net profit decreased by 26% to 93 million euros, and 1 billion 107 million euros in the first half of 2018.

If the net profit is measured in 2017, the price earnings ratio of the acquisition is 50.5 times higher.

In the case of a slight increase in revenue and net profits, the offer is not too high, far higher than the price earnings ratio of 21.8 times that of Anta itself.

After the announcement, Anta's share price went up and down in September 13th and fell by 9.15% throughout the world.

What is the cause of Amer? It is worth the cost of Anta. Outdoor sports enthusiasts should have heard of the brand of Arc teryx, which has the name of "Hermes" in sportswear, the price is high, and the starting price of one is up to 4000-6000 yuan.

AmerSports is the parent company of "primitive bird".

In addition to the eulogy, Amer also owns famous brands such as French outdoor off-road brand Salomon (Salomon), American tennis equipment brand Wilson (Wilson), Austria ski brand AtomicSkis (Ato Mick), Finland sports watch Suunto (song Tuo) and so on (Figure 1).

It is worth mentioning that AmerSports is a typical epitaxial growth mode, starting from tobacco manufacturing and distribution, gradually acquiring sports goods for operation, stripping tobacco business, focusing on sports industry, and growing into an integrated sports brand operation management company.

Figure: Amer Sports brand matrix (revenue accounted for 2018 China daily data)

Why did Anta choose to buy Amer?

First of all, we must combine Anta's current situation.

In 2018, Anta's interim earnings report posted a 44% year-on-year increase in revenue, but the stock price did not rise or fall, or down more than 10 points.

The sharp drop in stock prices reflects concern about the sharp rise in Anta sports recent stock and the sharp drop in operating cash flow.

Anta reported that in the first half of 2018, its net operating cash flow dropped from 2 billion 58 million yuan in the same period in 2017 to 1 billion 476 million yuan, down 28% from the same period last year.

In this regard, Anta said that on the one hand, the proportion of Direct stores increased, stock raising was related to stocking, and on the other hand, it was related to the price of raw materials such as cotton and feather down.

If the net decrease in operating cash flow is still normal, the sharp increase in Anta's inventory in the first half of the year is more worrying for investors.

According to the 2018 China Daily, Anta sports stock reached 2 billion 274 million yuan as of the end of 6.

Among them, the value of finished products is about 1 billion 947 million yuan, accounting for about 85.6%.

At the end of 6 2017, Anta sports stock was only 1 billion 444 million yuan, of which the finished product was 1 billion 179 million yuan.

While inventories and other stocks grew significantly, Anta sports average stock turnover days increased 15 days from 68 days in late 2017 to 83 days in 2018, setting a new high since its listing.

It is worth mentioning that soaring advertising costs have also engulfed Anta sports net profit to a certain extent, resulting in a decline in net interest rates.

In the first half of 2018, Anta sports gross profit margin increased from 50.58% in the same period last year to 54.26%, but net interest rate dropped from 19.76% to 18.54%.

The decline in net interest rate is related to the huge increase in advertising costs.

According to the financial report, the advertising and publicity expenses of Anta sports amounted to 1 billion 953 million yuan in the first half of 2018, accounting for 11.7% of its total revenue.

In the same period of 2017, this figure was only 681 million yuan.

The cost of advertising increased significantly. The explanation given by Anta sports was due to the renewal of the Chinese Olympic Committee in the fourth quarter of last year.

Since the market value of Anta exceeded 100 billion, how to go behind it has become a magic nightmare that plagus the market.

GMT was empty and fell; the revenue of Chinese newspapers increased sharply or fell; if it wanted to buy Amer, it would still fall; if there was no new growth, how could it support its 100 billion market capitalization?

Although it is already the largest sporting goods company in the country, Anta's goal is obviously more than that.

It is almost impossible to rely solely on endogenous brand growth to become an international sports company that can match shoulder and Nike, and this is why Anta has been gossing constantly on cross-border mergers and acquisitions in recent years.

Previously, Anta has been intent on acquiring German sports brand PUMA, compared with Amer, PUMA is a single brand, and for Anta, it is more difficult to integrate business.

But why did Anta buy PUMA instead of AmerSports?

PUMA is a more fashionable sports brand. In this piece, Anta already has FILA that has been nurturing for many years. Therefore, the acquisition of PUMA can not meet the needs of Anta's professional multi brands, instead, it will overlap with FILA business.

AmerSports's sports brand, though not fashionable and popular, is not as good as PUMA. However, it has a high degree of professionalism in the field of professional segmentation.

From the synergy of brand and business, AmerSports's high-end positioning in the global outdoor mountain equipment market has not only met Anta's desire to take the high-end route, but also accords with its professional requirements for sports brand.

It is easy to see that the acquisition of Amer satisfies Anta's ambition to internationalize.

Unlike the past acquisition of single brand operation rights in China, the Anta will aim at a world-class multi brand sports company; localizing these brands, leveraging the Chinese market, can get a rise in performance; and acquiring the international brand itself can get the popularity of the whole ball, which is similar to Geely's acquisition of Volvo.

If the acquisition is completed and the successor business is integrated and operated successfully, Amer will become a "kill weapon" for Anta's "curve" to catch up with the two giants of Adidas and Nike.

In addition, Amer is mostly winter sports brand. If the acquisition is successful, it will enhance Anta's position and liquidity in the 2022 Beijing Olympic Winter Games.

For sports brand, every big event is a good opportunity for pformation.

Perhaps the motive of Anta sports's acquisition of AmerSports is not only to achieve internationalization, but also to introduce the international high-end outdoor brand to China through the east wind of the Beijing Winter Olympic Games, and establish its own brand advantage in the field of outdoor sports.

After all, Amer accounts for only 14% of the revenue in the Asia Pacific region, which means that for Anta and Amer, it may mean that there is much room for its subsequent growth.

The reason why FILA can bring back to life is to a large extent relied on the strategic positioning of returning to "sports fashion" in advance, so that it can regress to the draught.

Amer's outdoor sports, especially the high-end market, is still in the blue ocean in China.

In 2016, the national development and Reform Commission released a number of sports related industry development plans such as "mountain outdoor sports industry development plan" and pointed out that the scale of outdoor sports, water sports, aviation sports and ice snow sports in China will reach 1 trillion and 500 billion yuan by 2020. Among them, the ice snow sports development plan (2016 to 2025) put forward that the total scale of China's ice and snow industry will reach 600 billion yuan in 2020, and 10000 billion yuan in 2025.

Therefore, compared with the mature traditional sports field, China's outdoor sports industry has more room to dig.

At present, the high-end market of domestic outdoor sports products should still be blue ocean, including mountaineering, skiing and so on. There is no brand that can really lead the development of the industry in China.

In the long run, with the increase of professional population, the market will be opened. The focus of outdoor sports products competition will gradually evolve from the initial production competition and price competition to channel competition, and then to the stage of brand competition. The future industry competition will go deep into the competition of comprehensive strength.

Amer's 10 brands of sportswear, footwear and accessories are all the leading segments of the market. After the acquisition, Anta will help Anta enter more growth segments such as skiing and other outdoor sports, and bring synergy to its procurement and marketing channels.

Moreover, the upstream supply chain of Amer is relatively fragmented. Its brands, Salomon and the original bird, are mainly clothing, and can integrate supply chain with Anta's Descente, KolonSport and FILA.

With the help of Anta's retail advantage in China, regional network, supply chain resources and logistics infrastructure, Amer's business in China is also expected to be strengthened.

From the perspective of brand upgrading or market development, taking the Winter Olympic games free ride and the risk of diversification and smoothing, the logic of Anta's acquisition of Amer is relatively smooth.

Nowadays, the domestic sports shoes and clothing market has already formed a clearer and stable competition pattern. Among them, the competitive advantage of overseas brands is increasing day by day, and overseas brands occupy half of the top ten brands.

In 2017, the market share of Adidas and Nike totaled 34.9%, ranking the top two in the domestic market, and Anta's market share reached 7.4%, ranking third.

In the face of the fact that international brands occupy the leading position in the market, there is little possibility for Anta to occupy the high-end market through the main brand in the domestic market.

While most domestic sports enterprises want to look for new growth points, they will generally choose to acquire sports brands which are already mature abroad. For example, Guai bird (603555, stock bar) (603555) spent $26 million in October 2016 to buy the trademark rights of the US basketball equipment brand AND1 in the greater 31 years.

Therefore, Anta, well versed in the market rule, has not been forced to use its main brand to upgrade its high-end market and overseas market, all through the acquisition of overseas brands.

Unlike Lining's "knock down" on brand upgrading, Anta is good at leveraging and combining multiple forces together to open up high-end markets with sophisticated foreign brands, and is relatively flexible in strategy. Whether it was discovered in 2008 that the retail business of agent international brand did not make money, it immediately turned to its own acquisition of FILA for operation and management, or in 2012, it adjusted the order system to the distribution system and 2013, and tried to optimize the measures such as "retail oriented" pformation, all of which were adjusted in a timely manner.

However, after brand acquisition, it also faces a series of problems such as follow-up localization operation and marketing.

Although FILA was reborn in Anta's hands, Anta's brand did not extend the momentum of FILA after FILA.

The brand of Anta's subsequent acquisitions includes the 2015 Sprandi, Spandi, 2016's Japanese skiing brand Descente (Desanto), and the Korean mountaineering brand KolonSport (Kok outdoor) in 2017, as well as the brand Kingkow of young children (Xiao Xiao cattle). At present, these brands are still in the breeding stage.

So the same question is in front of AmerSports.

If Anta is successfully acquired, can Amer copy the growth of FILA? Can FILA's experience become a template for Amer to enter China's high-end segment? In addition, the risk of returning to the acquisition itself is still there.

In the takeover bid, Anta made a cash price of 40 euros per share, with a total price of 4 billion 700 million euros (37 billion 500 million yuan).

Although Anta management stressed that the project will be financing by bank loans and without financing from the capital market, Anta currently holds net cash of 9 billion yuan.

But since the price is equivalent to 30 times earnings in Amer2018, the acquisition or dilution of Anta's profits.

In 2017, Amer's net sales increased by 2% to 2 billion 685 million euros, and net profit fell 26% to 93 million euros.

Over the past few years, due to the existence of irregular mergers and acquisitions, Amer's income has increased steadily, but profits have changed very much (Table 3).

Among them, in 2017, AmerSports was affected by the stripping of disposable intangible assets, resulting in a non recurring loss of 46 million 700 thousand euros, resulting in a big decline in net profit.

Over the past 5 years, the compound sales growth of Amer has been 5%, and the compound growth rate of net profit is only 1%.

In addition, considering Amer's high debt (net debt of 820 million euros) and foreign exchange risk, it may drag Anta's profit margin.

In addition, although Amer is a Finland company, many businesses are in the US.

Sino US trade relations continue to be tense, which will bring more uncertainties for Anta's future operation.

So the biggest question now is whether Amer is worth the price.

After all, the acquisition cost of 37 billion yuan is equivalent to more than 4 of Anta's current market value. The adoption of full cash acquisition will create enormous financial cost pressures. These difficulties are no less than the difficulty of integrating and developing the market. How Anta will resolve them is also a worry for the market.

In October 11th, Anta formally began negotiations with AmerSports, and many acquisitions have yet to be confirmed.

The inclusion of Tencent and other consortia may ease Anta's debt pressure.

However, even if we can successfully acquire Amer, Anta's short-term challenges will not be easy. In the long run, if Amer's brands operate well, a black horse like FILA will emerge, or Anta will start a new journey and become Anta's "internationalization" starting point.