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After several false starts based on repeated market rumors, leading sportswear maker Anta Sports Products Ltd. (OTCPK:ANPDY, OTCPK:ANPDF) (2020. HK) is finally off to the races with plans to spin off its Finland-based Amer (AS) unit for a separate New York listing. Anta finally sprinted from the gate with the news earlier this month, saying it planned to list the unit on the New York Stock Exchange. The positive news fueled a brief rally for Anta’s own Hong Kong-listed shares, which rose as much as 3.5% before running out of fuel and ultimately closing down slightly on the day.
Amer’s prospectus filed with the U.S. securities regulator shows the company was founded in 1950 in Helsinki, and listed locally in 1977. It was privatized in 2019 by an Anta-led consortium whose other members included private equity fund FountainVest Partners, Lululemon founder Chip Wilson and internet giant Tencent (OTCPK:TCEHY, 0700.HK). It currently owns several sporting brands, including Salomon athletic shoes; Arc’teryx outdoor wear; and sports equipment maker Wilson. It employs 10,800 and sells its products in more than 100 countries.
The company suffered relatively little during the pandemic, with its revenue growing from nearly $2.45 billion in 2020 to $3.55 billion in 2022, averaging 20.4% annual growth during that time. The growth rate accelerated to nearly 30% year-on-year by reaching $3.5 billion in the first three quarters of 2023, while its gross margin roses by 2.8 percentage points to 52.2% over that time.
Despite the strong revenue growth, Amer is still in the red. The company’s net loss widened 9% in the first nine months of last year to $114 million, and its annual net losses between 2020 and 2022 have ranged from $126 million in 2021 to $253 million in 2022. But Amer’s adjusted EBITDA, which tends to filter out many non-operational and non-recurring factors, looks much better, rising 61.3% year-on-year to $422 million in the first nine months of 2023.
Although the company has yet to become profitable since its privatization, it’s quite confident about its prospects. It pointed out that its brands cover a wide range of sports segments, from sportswear, to athletic shoes and sports equipment, which had respective market sizes of $220 billion, $152 billion and $75 billion in 2022 and are expected to grow between 6% and 7% annually between 2022 and 2027, according to third-party data in the IPO prospectus.
Rapid growth in China
Amer mainly sells its products through distributors, earning $2.05 billion in revenue from those channels in the first nine months of 2023, up 19.9% year-on-year and accounting for 67.2% of its total. The rest of its revenue pie comes from a more recently developed direct-to-consumer sales model, which grew by an even faster 56.7% to $1 billion in the first nine months of last year.
Anta’s home China market has been one of Amer’s biggest growth engines, mimicking a pattern often seen when Chinese companies buy Western brands and then use their home connections to bring those brands to Chinese consumers.
Amer’s Arc’teryx had just 14,000 members in Greater China in 2018 pre-acquisition. But savvy promotion via WeChat following the purchase helped the number soar to more than 1.7 million in 2022. Amer’s Greater China revenue jumped as well, more than doubling from $202 million in 2020 to $524 million in 2022. The growth continued in the first nine months of last year, with revenue up 67.6% year-on-year $593 million. As China sales have grown, revenue from Greater China has increased from 8.3% of Amer’s total in 2020 to 19.4% in September last year.
Amer has also done well in other parts of Asia, where its revenue in the first nine months of 2023 grew by 52.8% to $235 million, accounting for 7.7% of its total. The U.S. is the company’s biggest single market, though growing far more slowly than Asia. Still, its revenue for that market grew by a respectable 19.3% to $1.23 billion in the first nine months of 2023, accounting for 40% of its total.
One of the biggest beneficiaries of an Amer IPO could be Anta itself. A research report from Bocom International pointed out that Amer plans to pay off $1.4 billion in loans using some of the funds it raises through its IPO, which will help save between 550 million yuan and 600 million yuan in interest payments per year.
U.S. market set for correction?
Amer is reportedly aiming to raise at least $1 billion in the listing, and could raise as much as $3 billion if demand is strong, valuing the company at up to $10 billion. Reflecting those big hopes, the company has signed on six of the biggest global investment banks as the deal’s primary underwriters, namely Goldman Sachs, BofA, JPMorgan, Morgan Stanley, Citigroup and UBS.
The biggest risk for the listing is potential for a correction in U.S. stocks, following a year-end rally that pushed the S&P 500 index to a lofty price-to-earnings (P/E) ratio of 21.8 times – well above its historical average of 17 to 18 times.
What’s more, much of the S&P 500 rally came at the end of last year, when it rose for nine straight weeks from the end of October to the end of December. But it started the first week of 2024 with a 1.6% decline, suggesting it may be getting set to correct.
With such a correction almost inevitable at some point, Amer will likely feel pressure to move quickly on the IPO, lest it be forced settle for less or even delay the listing if market conditions worsen. Against that kind of backdrop, it starts to look like a race against time for Anta to get Amer up as a separately listed, U.S.-traded company as quickly as possible.
Disclosure: None.