As the Deckers (DECK) short squeeze has caught fire over the past few weeks, speculation has picked up with respect to who might potentially acquire the company. This all started with a Bloomberg article that focused mainly on VF Corp. (VFC), and has now morphed into Jim Cramer touting the idea as one of his 2013 top ten predictions. Amusing to say the least, but at this valuation you can obviously see the appeal to throwing oneself behind such a bold prediction. So, I am going to make my own bold Deckers prediction for 2013….
Labelux Will Buy Deckers
For those not familiar with the name, Labelux Group is a privately held Swiss based luxury goods group founded in 2007. The owners of the group are Joh A. Benckiser SE, a family holding company that is active across the consumer goods sector. They own privately held global beauty products behemoth Coty Inc, 16% of the publicly listed British multinational consumer goods company Reckitt Benckiser, and, as of a few months ago, Peet's Coffee (PEET). The Labelux division was founded in 2007 and has been aggressively acquiring brands in the shoes and leather goods space, notably Bally, Jimmy Choo, and Belstaff.
So, why is Labelux a more logical suitor than VF?
1) Uggs is a Fashion Brand and not an Outdoor Wear Brand
While VF makes a lot of sense as a Deckers acquirer because of the fact that the company also owns Teva and Sanuk, I think the Uggs brand needs to be owned by a luxury fashion goods player over an outdoor wear company if it is going to maintain its brand equity. Labelux fits into that category along with other European Luxury goods players like Paris based PPR and LVMH
2) The growth story for Uggs is Outside of North America
Deckers has done a good job milking the brand in North America, but as far as international goes, sales of Uggs outside North America are still less than 30% of total sales. Labelux is much better positioned to accelerate growth in China and Europe as it already has a nice footprint in those regions and the know how needed to properly position a brand in those markets.
3) Labelux is looking for a strong North American shoe/leather goods brand along the lines of Uggs to plug into their portfolio
If you look at how Labelux has built out its portfolio since it was founded a major North American focused shoe/leather goods company would seem to be the logical next buy after Bally and Jimmy Choo. Management recently sold the Derek Lam brand back to its creators to "refocus activity on luxury leather goods and shoes." A purchase of Decker's would give Labelux a strong presence in North America as well as a brand they can uniquely leverage internationally.
4) Labelux has the deal experience needed to put together a structured transaction to acquire Deckers
The way I see it a Deckers buyout by a fashion brand holding company will require divesting the Teva and Sanuk brands. Thus, you are probably talking a two step transaction here that will require some private equity partners. Labelux should have no problem with this as they bought Bally from TPG Capital in 2008 and Jimmy Choo from Towerbrook Capital in 2011. They could acquire Deckers outright and simultaneously sell of the non Uggs brands to PE partners.
Anyway you look at it Deckers is basically the Uggs company right now, and a buyer will be exclusively focusing on that brand. Labelux's desire to build a global player in the space makes them a much more motivated suitor at this stage, and I believe the Benckiser Peets Coffee acquisition also hints that the parent family group has clear interests in beefing up North American-focused consumer brand exposure in their portfolio. I also think as far as Nike (NKE) and VF go Decker's makes little strategic sense. Nike has been dumping non core brands and is not about to take a plunge into a non-performance wear company, and I think VF would be somewhat hesitant as Uggs brand positioning may or may not be the right fit for them depending on how you view the brand.