An Inevitable Deal: SPY Purchased by Bolle

I never learned why SPY went public in the first place all those years ago.  I imagine it was because a group of people who may not quite have understood the industry saw potential fast growth and a chance to make a lot of money.  Those were different times.  I have some experience with that way of thinking from the snowboard industry.

The benefit to me, and to you, was in being able to follow a smaller niche player with a solid brand and see how they could compete among the big players in an industry where meaningful product differentiation wasn’t easy to come by.

I wrote about SPY from its public filings every quarter for years.  Those articles are available on my web site.  SPY had some serious management issues, a problem with an Italian sunglass factory they purchased, over production, and some others I can’t remember.  Gradually- too gradually I’d say- they worked through them.

I found it promising that the brand could maintain credibility in its market even as the various issues roiled it.

Major shareholder Seth Hamot, who’s deep pockets were what allowed the company to remain independent, took over as CEO and did a lot of things right.  His greatest virtue (aside from having money and being smart) was in not believing all the hooey he got told about what you “had to do” to succeed in this industry.  He made some good decisions that industry insiders might not have made.

When he died in March 2018 (I miss my friend) it was inevitable that the company would be sold, and selling it to one of the large players, such as Bolle, was probable.  The purchase price hasn’t been made public, but what I can say is that it’s always better when a small, solid brand that has some size related cost and competitive problems is bought by a strategic buyer that can solve those problems as described below.  The seller will always get a better price than from a financial buyer.

What SPY had proven, as the market has evolved, is that the advantage is with larger players.  SPY had a solid brand that proved surprisingly resilient.  But it couldn’t begin to compete with bigger brands in marketing spend, distribution, financial efficiency, or product cost.  There’s a lot of that going on.

Bolle will drive down SPY product costs and improve revenue by getting SPY products in certain of their existing distribution channels.  The result will be a higher gross margin.  They will probably be able to reduce certain administrative expenses.  Financing costs should largely go away.  I can imagine some new products and product categories for SPY, and the marketing resources required to grow will be available.

We’re told that the SPY team will remain intact, and it’s headquarters stay where it is.  I hope so.  We’ve all watched small, solid industry brands get purchased and then screwed up.

I am hopeful one of the first things the new owner might do is get SPY out of Costco.  Cash flow from that business won’t be as crucial to Bolle.  Basically, Bolle knows the market SPY is in and, I expect, sees a simple path to some growth consistent with keeping the brand strong and an improved bottom line.  Actually, the focus will probably be on the EBITDA line.

So this looks to me like a correct and necessary deal, and I will look forward to hearing how SPY does.

10 replies
    • jeff
      jeff says:

      Hi Former,
      Yeah, maybe, but I think it’s pretty common knowledge that SPY was sold there. And I’m pretty clear it was only for the cash flow, and SPY will be happy not to be selling there. Anyway, if you’re a regular reader, you know I’m likely to make what I believe is an important point even if I piss somebody off.
      Thanks for the comment.
      J.

      • Former
        Former says:

        I have the books on both deals, I understand what Charlie can’t say. Tough to get out from between the rock and the bigger rock.

        And you always tell it like it is…but some bridges can’t be uncrossed.

        • jeff
          jeff says:

          I don’t suppose you’d like to email me off line and tell me who you are? I have a guess actually. And I don’t suppose you’d like to share those books? If I promised not to write about them? Please? There’s a good dinner in it for you- unless you already owe me dinner.
          Thanks,
          J.

      • Lennox
        Lennox says:

        I’m not sure if Bolle will support removing the Costco revenue stream, it’s a focal point of distribution for Bolle as well.

        • jeff
          jeff says:

          Hi Lennox,
          And there you have it- What does Bolle think of the SPY brand and how will they position it? One could argue that how they manage the Costco business is an early indicator. Although, it’s certainly possible to have a discussion around distribution being more complex and subtle than it used to me. The days of “core” or “not core” clarity are long gone. I still have a generally negative reaction to Costco because I believe brand building is so critical. Yet, with so much product and product information available in so many places, are there times when a given brand might generate some of that good old Costco cash flow as part of an overall brand strategy without being detrimental to the brand. Maybe. I guess I think that if you’re doing it for the cash flow (and why else would you do it?) you’re better off without it.

          J.

  1. Charlie
    Charlie says:

    I love to read and occasionally comment on your blog posts, Jeff. This one I have to recuse myself from, except to say that I also miss my friend… and former boss. Thanks for remembering him well here.

    And keep saying things that you think are important. That’s why we keep coming back for more.

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