November 21, 2011

HolySmokes, Who Acquires Who? I Mean Whom? I Mean Orbit Baby??

Good thing I'm sitting down.

Because Rachel from just hit me upside the head with a frying pan of news, that ERGObaby, the baby wearing company, has acquired Orbit Baby, the off-the-hook, advanced stroller/car seat transport system company.


I mean, really? It's like hippies vs. hipsters all up in there. I didn't even know ERGObaby people had cars. Except for maybe the occasional biodiesel conversion. But that's how market segmentation works, I guess; you don't build a broad, middle market Baby Durables subsidiary by targeting a single parent niche.

And growing strong North American market leaders that can throw off healthy cash is what Compass Diversified Holdings [NYSE: CODI] is all about. Compass is a publicly traded holding company which specializes in acquiring small-to-medium-sized businesses, and in providing them growth capital. Their seemingly random-sounding portfolio includes Camelbak, the water backpack guys; Liberty Safe, a leading gun safe manufacturer; and Advanced Circuits, a custom circuitboard printer. The unifying thread is businesses with the potential to yield a nice cash flow. And I suppose $1500 stroller systems fit that bill.

Truth be told, a baby gear company's no more out of place at Compass than Graco is at Rubbermaid, or everybody else is at Dorel.

One datapoint as I tried to make sense of how this deal came together is tucked away in this Reuters profile of CODI: ERGObaby's 2010 revenue for the 14 weeks it was part of Compass equaled 0.7% of the company's net revenue, which was $1.658 billion. Which calculates out to what, around $47 million worth of baby carriers in 2010? That seems like a lot to me. As awesome as it is, I can't imagine Orbit sells anywhere near that amount.

Yeah, that makes no sense. According Compass's latest 10-Q, ERGObaby's 2011 sales are running about $26-28 million. And they were $22.8 million in 2009, with a pretty healthy EBITDA of $13 million, and a 7x multiple, for an acquisition price of $91 million.

The Orbit Baby deal press release says the acquisition price is $17.5 million, and consolidated 2011 revenues would be $53 million, which means Orbit's revenue was also around $26 million. But their margins and cash flow must be much less. If you use ERGO's multiple, for example, you only get $2.5 million. I'm going the multiple's a little lower, and that operating cash flow is a little higher, and that Orbit needed capital to grow beyond their current product range. Or maybe someone needed to cash out.

All I know is, you won't find this kind of rambling ruminations about the workings of the Baby Industrial Complex on any of those Mouse-type parenting blogs.

Orbit Baby Joins ERGObaby []
Accretive Add-On Acquisition Expands ERGObaby's Global Presence in the Baby Durables Market []


I love my Ergo and I definitely own (and drive daily) a car. :-) I didn't realize it was especially hippie- I thought real hippies only used wraps that were unique and hand sewn by a woman in India that the buyer/wearer is actually dear friends with via mail. My husband won't wear our Ergo, he says it gives him a stomach ache, even though I made sure to get it in manly black so he wouldn't be embarrassed to be seen in it. To be fair, he wore the Moby way more than I ever did so I think the Ergo really does bother his stomach.

Our stroller is a Jeep though. Aren't the Orbits some of the insane expensive strollers?

And Fox shocks! My boss' Raptor has Fox shocks.

Our wrap was Guatemalan free trade, damnit. But we do appreciate the insight into the BIC.

I thought the BOB/Britax pairing was pretty odd too, where BOB is more "throw it in the back of your Subaru with the rest of your tri gear" and Britax is more "works best in something German or Swedish."
I'm actually shocked that Orbit has that much revenue because I almost never see these (even on the UWS!) but that revenue calculation is dependent on price and volume so I guess Orbit's strength is on the former. But on the rare times I do see these strollers they just seem to go down the sidewalk in such an awkward and sloppy manner compared to just about everything this side of a snap-n-go.
While the advantages of these mergers are often felt somewhere other than the product lines themselves it's fun to wonder about what the product mashups could look like. In this case I'm stumped. An Ergo carrier that could rotate the baby 180 degrees would leave the kid hanging head down.

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