VF Corp. jumped the most in 33 years after agreeing to buy Supreme, a streetwear fashion label, for $2.1 billion to bolster its portfolio of apparel and footwear brands.
The cash transaction, expected to be completed by year end, marks VF’s largest acquisition since it bought Timberland in 2011 for $2.3 billion. The Denver-based company also owns Vans and the North Face brands.
The deal comes at a time when the apparel sector has been upended by the coronavirus pandemic as consumers move away from discretionary items in favor of groceries and other essential goods. Still, the Supreme brand remains a gem in the industry because of its cult following among younger millennials and Generation Z consumers.
“We’ve been on a journey the last four years to evolve our portfolio to really align with where we saw the market and more importantly the consumer going,” VF Chief Executive Officer Steve Rendle said in an interview. “Supreme fits so well into our evolved portfolio.”
The company’s buying Supreme from private equity firm Carlyle Group and investors including Goode Partners. An earlier report showed Carlyle paid $500 million in 2017 for a roughly 50% stake in the fashion brand, an investment that could double in value based on the latest transaction. Supreme declined to comment on the earlier deal.
VF said Monday the Supreme brand will be modestly accretive to its revenue and adjusted earnings per share in the year ending March 2021. In the following fiscal year, Supreme is expected to contribute at least $500 million of revenue and 20 cents of adjusted EPS.
‘Needle-Moving’ Deal
“What this shows us is companies are looking for needle-moving acquisitions rather than tuck-ins, and they’re looking for needle-moving acquisitions of exciting companies,” said Simeon Siegel, a retail analyst at BMO Capital Markets.
While the pandemic created an opportunity for companies to do deals at a discount, many potential acquirers aren’t interested in a turnaround story, he said in an interview. “They would rather buy an asset that they think they can cultivate and incubate.”
VF’s shares jumped as much as 17% Monday in New York, the biggest intraday gain since Oct. 20, 1987, the day after the infamous Black Monday stock market crash. The stock fell 30% this year through Friday’s close, compared with a 17% gain in the S&P Retail Select Industry Index.
Supreme will help expand VF’s digital channels, which have been one of the company’s growth engines during the pandemic. Rendle noted Supreme’s “agility” to connect with customers both in brick-and-mortar locations and through its social channels. The apparel is either sold through Supreme’s stores or website, which generates more than 60% of its revenue, according to Rendle.