Gildan Activewear has finally announced a deal that most people expected was coming -- they just weren't sure with whom it would be.
The answer came late Monday when Gildan announced its $350-million (U.S.) acquisition of Gold Toe Moretz Holdings Corp., a sock maker focused on athletic footwear.
Gildan was recently out on a big marketing road show during which chief executive officer Glen Chamandy made it very clear that he was looking for a partner that offered either new channels of distribution or brand diversification. "This acquisition fills that void 100 per cent," Mr. Chamandy said Monday.
Although Gildan already has some socks in its portfolio through brands like Starter, this deal offers access to new distribution channels. At the moment, 60 per cent of Gildan's sales go to one major client. After the deal, that client will represent just 30 per cent.
"There's no overlap with distribution whatsoever," Mr. Chamandy said.
Currently, Gildan targets mass market stores and dollar stores, while Gold Toe has relationships with the clubs, like Sam's Club.
Financially, Gold Toe posted an EBITDA margin of 17 per cent last year, and a gross margin of 35 per cent. Adjusted EBITDA was $48.6-million while net earnings were a low $2.3-million. Gildan estimates that combining the two companies will create cost synergies of about $10-million to $15-million a year over the next 24 months. However, it's still pretty vague where exactly these savings will come from.
Most of the deal will be paid for by Gildan's credit facility, which has an extremely low interest rate of LIBOR plus 75 basis points.
Gold Toe Moretz's senior management team, including the chairman and CEO, have said they will stay on at Gildan.