Safilo, the Italian eyewear group that owns Smith Optics, has bought a 70 percent stake in a fast-growing Californian firm, Blenders Eyewear, that targets Millennials and Generation Z customers with cool sunglasses and snow goggles and has a great website.
Safilo also reported that it has signed an eyewear licensing agreement with Under Armour, but the details were not immediately available. The license is held until the end of 2019 by Eyeking.
Blenders will generate synergies in terms of product design and development with Smith, as well as in sourcing with Safilo's cheaper, proprietary Polaroid Eyewear brand. Because of its special business model, it is expected to contribute to develop Safilo's e-commerce and omni-channel development strategy.
Chase Fisher, who founded Blenders in San Diego in 2012, will retain a 30 percent stake in the company and remain its chief executive. He will have the option to sell his stake from 2023, giving Safilo a right of first refusal.
The deal values Blenders at $90 million on a cash-and-debt free basis. Safilo will finance the purchase through available cash and credit facilities as well as a €30 million loan provided by its controlling shareholder, Multibrands Italy, a unit of its Curaçao-based holding company, Hal. The loan is expected to bear an annual interest rate of between 3 and 4 percent, in line with the financing offered by the banks.
Blenders has been profitable since its start. This year, it is projected to post a sales increase of about 40 percent to around $42 million, entirely generated in the U.S. Safilo will be leveraging on its international presence to expand the American brand globally.
In the last three years, Blenders' sales rose by an annual average of 175 percent. Blenders generates 95 percent of its revenues from its proprietary direct-to-consumer e-commerce platform, which has been complemented by the opening of its first physical store, located in San Diego.
No details were available about Blenders' profitability but Safilo indicated that gross margins in the DTC business can reach up to 80 percent of sales, and that Blenders' Ebitda margin is in the mid-teens.
An Italian investment broker that follows Safilo, Equita, estimates the purchase price to be high at over twice projected 2019 revenues, but considers it to be an “interesting growth initiative.” Safilo is budgeting continued double-digit growth for Blenders over the next five years (see the article on Safilo's business plan in this issue).
Safilo's chief executive, Angelo Trocchia, said that Blenders will become the group's “center of excellence” for “digital capability.” The group plans to merge Blenders' and Smith's digital teams, with San Diego and Portland, where Smith has its headquarters, serving as the digital hub for the group. Smith aims to increase its online sales to 20 percent of total revenues in 2024, compared with 14-15 percent currently.
Trocchia revealed that Smith's expansion in Europe will rely solely on e-commerce and a “couple of specialized sports chains.”
For Blenders, which is not expected to be made available in the wholesale channel, sales through its own physical stores could represent 10 percent of sales, Safilo indicated.
Blenders, which retails at $35-65 a pair for sunglasses and $40-95 for goggles, does not offer manufacturing synergies with Smith in eyewear, because the latter is placed in a higher market segment, but it could benefit from Smith's production facility for goggles in Clearfield, Utah.
Safilo pointed out that Blenders, like its Polaroid Eyewear brand, retails at too low a price bracket to manufacture sunglasses in its own facilities in the U.S., Italy or China. But the two brands could benefit from the same supply chain, resulting in sourcing and transport synergies for the group.
Safilo outsources about two-thirds of its production volumes - mainly in China, but also has some suppliers in Vietnam and contracts out a marginal part of its production in Bangladesh.
There will also be synergies in logistics. Blenders currently relies on a third-party logistics operator in San Diego while Smith uses Safilo's brand-new North American distribution center in Denver, which also manages Smith's e-commerce. Safilo still has to decide whether to bring Blenders' logistics platform in house, use the existing Denver site or outsource Smith's logistics.
It's unlikely that Smith and Blenders will cannibalize each other. The takeover resembles in some ways the recent acquisition of another Californian brand of action sports eyewear, Spy Optic, by Bollé Brands, which owns Bollé, Cébé and Serengeti.
The acquisition of Blenders is part of a strategy by Safilo that calls for an increasing reliance on proprietary brands, following the loss of some key fashion eyewear licenses. Trocchia discussed it yesterday in presenting the company's business plan for the next five years to investors. More on this in Eyewear Intelligence.