MLB Partners with P.E. Firm to Acquire Rawlings

Rawlings

Seidler Equity Partners (private equity firm) and Major League Baseball (non-controlling interest) have acquired Rawlings – and subsidiaries Miken and Worth – for $395 million, from Newell Brands (NWL). The 131-year-old baseball equipment company has manufactured the league’s official game ball since 1977 and maintains the contract to supply the league with balls and batting helmets through 2021. MLB EVP for Strategy, Technology and Innovation Chris Marinak said the acquisition will give the league “even more input and direction on the production”, important with the league facing accusations that home run numbers have soared over the last 3 seasons because of “juiced baseballs.”

Howie Long-Short: Newell Brands acquired Rawlings as part of a $13 billion takeover of Jarden, back in 2013. That deal nearly doubled the St. Louis manufacturer in size ($11 billion in revenue over 1st 9 mo. of ’17 vs. $6 billion prior) but left it with $10 billion in debt, which explains why they’re shedding assets (see: Waddington Group for $2.3 billion) that don’t align with their 9 core consumer divisions (think: Sharpie pens to Crock-Pot cookware). NWL intends on using the sale’s proceeds (+/- $340 after taxes) to fund share buybacks and pay down debts.

Rawlings was considered the least valuable of the brands NWL wanted to unload. Deutsche Bank pegged the company at 8x EBITDA (+/- $360 million), so you can understand why President Michael Polk was “pleased with the agreement to sell Rawlings at an attractive multiple.” NWL shares are up +6% ($24.68 at Friday’s close) since news of the Rawlings deal broke, but remain down 20% YTD.

Fan Marino: Home run rates have unexpectedly soared since the ’15 season, with many claiming that today’s balls are bouncier, smaller and flatter-seamed – which lend them to jump off the bat and travel farther (i.e. reduced drag). There are those who argue it has more to do with the quality of today’s pitching, players altering the arc on their swings to hit fly balls and the elimination of the two-strike approach (think: plate disciple, shorter swing, avoid strikeout), but the surge in home runs is undeniable. In 2017, 14.2% of all balls hit left the yard (highest rate in MLB history) and teams mashed a MLB record 6,105 home runs (the previous record was 5,693 in ’00). The league has consistently denied there have been any alterations made to the ball.

Fun Fact: Rawlings is credited with producing the first pair of football shoulder pads.

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Newell Brands to Unload Official Ball Manufacturer of MLB, Sell Half of Factory/Warehouse Footprint

Rawlings

Rawlings Sporting Goods, the official ball manufacturer of Major League Baseball, is going to be sold for a 4th time since 2002; this time by Newell Brands (NWL). Newell is “exploring strategic options” for several subsidiaries that don’t align with their renewed focus on household products (9 core consumer divisions). The company, which has doubled in size since its 2016 acquisition of Jarden Corp., announced it will also look to cut its factory and warehouse footprint in half as part of the reorganization.

Howie Long-Short: Deutsch Bank (DB) analysts aren’t high on Rawlings’ business, considered the least valuable the 8 brands NWL wants to sell; worth an estimated $360 million (8x EBITDA, lowest multiple among the 8 brands). While NWL is going to end up selling some of the brands it bought from Jarden at multiples lower than they acquired them for, a company spokesperson was quick to note the company will remain far bigger than it was prior to the acquisition ($11 billion in revenue over 1st 9 mo. of ’17 vs. $6 billion prior). NWL shares are down 16% ($26.12 at Monday’s close) since news of the restructuring and 41% over the last 12 months.

Fan Marino: Rawlings, which also produces basketballs and footballs, has a well established reputation (121 years) and “good market share”; but, operates in a category (sporting goods) that simply isn’t growing. According to the National Retail Foundation, it was the only sector that failed to grow YOY (-.5%) during the holiday season. That likely limits potential buyers to companies that already operate within the space.

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GEORGIA TECH ATHLETICS LEAVING RUSSELL ATHLETIC; SIGNS 6 YEAR APPAREL DEAL WITH ADIDAS

Georgia Tech University has announced a 6-year deal that will make Adidas (ADDYY) the official apparel provider for 17 GT varsity sports. The partnership, which goes into effect on July 1, 2018, will replace the school’s existing deal with Russell Athletic (BRK.A). The mutually beneficial agreement provides Adidas with a presence in the Atlanta market, while providing GT with a boost in revenue and a significant improvement in apparel quality.

Georgia Tech to exchange Russell Athletic gear for Adidas starting in 2018

Howie Long-Short: When GT first signed on with Russell Athletic in 1992, sporting goods companies like Russell (BRK.A), Rawlings (NWL), Wilson (HEL: AMEAS) controlled the uniform market. 25 years later fashion and apparel retailers (NKE, ADDYY, UAA) dominate the space. Times have changed!

Fan Marino: You hear a lot of talk that GT’s relationship with Russell Athletic has damaged their recruiting efforts. I’m not buying that. Football struggles to recruit because they run a version of the wishbone offense that hasn’t been popular since the 1980s. Basketball can recruit. Josh Pastner has a 5 star, Nassir Little, on campus this weekend.