ANTA SPORTS-R's global merger and acquisition is about to be completed: Amer Sports aims to reduce debt and target the New York Stock Exchange IPO

The long-awaited IPO of Amer Sports, the parent company of the ancestor bird, has finally landed. This also means that ANTA SPORTS (2020.HK), which led the acquisition of Amer Sports five years ago, is about to "hand in" to the market.

On the evening of January 4th, Amer Sports submitted an F-1 document to the U.S. Securities and Exchange Commission, applying for listing on the New York Stock Exchange. Goldman Sachs, Bank of America, JPMorgan Chase, and Morgan Stanley will serve as joint lead underwriters, forming a luxurious lineup.

In March 2019, ANTA SPORTS-R joined hands with FountainVest Partners, Anamered Investments (owned by lululemon founder Chip Wilson), Tencent, and others to form a consortium, investing 4.66 billion euros (about 37 billion yuan) to complete the acquisition of Amer Sports. Currently, these four investors are also the only shareholders of Amer Sports with a stake of more than 5%.

The purpose of Amer Sports' submission this time is simple: to raise funds to repay debts.

According to the documents, Amer Sports plans to use the net proceeds from this issuance to repay all outstanding loans from existing shareholders, two joint venture company loans, and co-investment loans, as well as a portion of outstanding revolving loans.

As of September 30, 2023, Amer Sports' total liabilities amounted to nearly 7 billion US dollars, of which 773 million US dollars need to be repaid within one year.

Although Amer Sports' brands such as the ancestor bird and Salomon are thriving in China, the company's cash flow is severely strained due to the expansion of some businesses using a direct sales model, making it temporarily unable to repay its debts. From 2022 to the first three quarters of 2023, Amer Sports' operating cash flow had a net outflow of nearly 200 million US dollars.

Amer Sports did not mention the specific amount of funds to be raised in the document, but there have been previous reports that it is seeking a valuation of up to 10 billion US dollars and raising funds of 1-3 billion US dollars.

IPO Aims to Resolve Debt

As Amer Sports has been a joint venture company of ANTA SPORTS-R, the outside world has only been able to get a glimpse of its financial situation from ANTA SPORTS-R's regular financial reports.

With the submission of this document, the outside world can finally see the full picture of Amer Sports. In 2022, Amer Sports achieved revenue of 3.549 billion US dollars (about 25.2 billion yuan), which is comparable to Li Ning (2331.HK) during the same period.

In the first three quarters of 2023, Amer Sports achieved revenue of 3.053 billion US dollars, a year-on-year increase of 29.93%, a net loss of 141 million US dollars, and an adjusted EBITA of 422 million US dollars.

However, while Amer Sports is expanding rapidly, its debt is also growing, and its cash flow is gradually becoming strained.

In 2022, Amer Sports' total assets reached 7.895 billion US dollars, while its total liabilities amounted to 7.969 billion US dollars, with a net cash flow of -73.9 million US dollars. The situation slightly improved in the first three quarters of 2023, with a debt-to-asset ratio still exceeding 99% and a positive cash flow of 8.8 million US dollars. Yamafin Sports, known as a giant in the sports footwear and apparel industry, faces two sources of financial pressure.

On one hand, in recent years, Yamafin Sports' two main brands, ANTA and Salomon, have been vigorously developing their direct-to-consumer (DTC) channels and opening more self-operated stores. As of September 30, 2023, Yamafin Sports had a total of 138 ANTA stores, 114 Salomon stores, and 9 Wilson stores worldwide.

Generating revenue from these stores is a gradual process, which has led to Yamafin Sports, with its heavy asset expansion, needing to bear the burden of inventory and experiencing a continuous net outflow of operating cash flow. In the full year of 2022 and the first three quarters of 2023, Yamafin Sports had a net outflow of operating cash flow of USD 91.7 million and USD 106 million, respectively.

On the other hand, Yamafin Sports also faces capital expenditures for property, factories, equipment, and other investments, adding further pressure to its already limited cash flow. In 2022 and the first three quarters of 2023, its investment activities had a net outflow of USD 119 million and USD 95.6 million, respectively.

Documents show that Yamafin Sports will continue to have significant capital expenditures. The capital expenditure budgets for 2023 and 2024 are USD 200 million and USD 300 million, respectively.

Prior to this filing, Yamafin Sports relied mainly on blood transfusions from shareholders such as ANTA SPORTS-R.

In March 2019, a joint venture company, JVCo, formed by shareholders including ANTA SPORTS-R, signed a loan agreement with Amer Sports Holding (HK) Limited, a wholly-owned subsidiary of Yamafin Sports. As of the third quarter of 2023, the outstanding principal of the loan reached USD 2.6 billion (referred to as "JVCo Loan 1"). Yamafin Sports stated that USD 1 billion of this amount is expected to be converted into shares before the IPO, and the remaining borrowings will be repaid with the proceeds from the IPO.

Due to the conversion of shares, the shareholding percentages of ANTA SPORTS-R, FountainVest Partners, and other shareholders in Yamafin Sports have not yet been determined. According to information obtained from a source close to ANTA SPORTS-R, if ANTA SPORTS-R's shareholding percentage in Yamafin Sports exceeds 50% after the IPO, it is not ruled out that the latter will be consolidated.

As of June 2023, ANTA SPORTS-R held 52.7% of the equity and 57.7% of the voting rights in Yamafin Sports.

In addition, Amer Sports HK has another USD 1.4 billion loan (referred to as "JVCo Loan 2") that has not been repaid to JVCo. Yamafin Sports stated that the interest on this loan has been temporarily suspended, and it is expected to be fully repaid through the proceeds from the IPO.

In summary, the total amount of borrowings from JVCo Loan 1 and JVCo Loan 2 for Yamafin Sports amounts to a staggering USD 2.4 billion. Repaying these debts is also a driving force for Yamafin Sports to quickly "seize the beach" and raise funds through an IPO on the New York Stock Exchange at the beginning of 2024. According to the documents, YAMAFEN Sports is expected to repay and cancel the interest expenses related to the shareholder loans through this issuance, amounting to USD 168 million and USD 101 million for the nine months ending on September 30, 2023, and September 30, 2022, respectively. As a result, its financial expenses are expected to be reduced to USD 129 million and USD 68 million.

Beyond the Archaeopteryx

In the Chinese market, YAMAFEN Sports' brands, including Archaeopteryx and Salomon, have achieved great success.

On the one hand, this is due to the expertise of its controlling shareholder, ANTA SPORTS-R, in operating in different segments. On the other hand, the management teams of different brands under YAMAFEN Sports have impressive backgrounds.

For example, Stuart C. Haselden, who manages the technical apparel division of Archaeopteryx, previously served as the CEO and CFO of lululemon. Franco Fogliato, who manages the outdoor performance division of Salomon, has worked for outdoor brands such as Columbia and The North Face.

According to TradeWind01, who has obtained information from sources close to ANTA SPORTS-R, ANTA SPORTS-R's employment philosophy is to let professionals do professional work. "If ANTA SPORTS-R wants to focus on the running field, they will think of hiring people from Nike, rather than others."

In January 2023, ANTA SPORTS-R made organizational adjustments, with Ding Shizhong stepping down as CEO and assuming the position of Chairman of the Board of YAMAFEN Sports. Zheng Jie, who led the acquisition of FILA, became the CEO of YAMAFEN Sports.

The shareholder list of YAMAFEN Sports also includes executives such as Zheng Jie and Stuart C. Haselden, but the current number and proportion of their shareholdings have not been disclosed.

An interesting fact is that globally, Salomon's revenue is comparable to the popular Archaeopteryx in China, and even performs better. According to the documents, in the first three quarters of 2023, in terms of sales in US dollars, Salomon ranked second among outdoor footwear brands in the United States.

In terms of brand division, in the first three quarters of 2023, YAMAFEN Sports' revenue was mainly contributed by the Archaeopteryx and Salomon brands, amounting to USD 941 million and USD 949 million, accounting for 30.82% and 31.08% respectively.

In terms of geographical division, in the first three quarters of 2023, 40% of YAMAFEN Sports' revenue came from the Americas, 33% came from Europe, the Middle East, and Africa, 8% came from the Asia-Pacific region (excluding Greater China), and 19% came from Greater China.

Among them, the revenue growth in Greater China has been the most rapid, increasing from USD 202 million in 2020 to USD 524 million in 2022, with a compound annual growth rate of 60.9%. In the first three quarters of 2023, the revenue in Greater China increased by 67.6% YoY to USD 593 million. The management of Yamafei Sports attributes the performance in the Greater China region to the growth of the T-Rex brand. As T-Rex has more directly operated stores in the Chinese market, the operating profit margin in the Greater China region also exceeds the overall profit margin.

However, it is also possible that T-Rex is selling at a higher price in China.