BILLABONG International has snapped up southern California-based skateboard brand Sector 9 for an undisclosed sum.
Billabong said the US skateboard company, founded in 1994, was a market leader in the design and manufacture of skate longboards - a niche segment within the skateboard market.
The Queensland-based company expects the business to add about two per cent to group sales, implying the business generates $25 million to $30 million in sales, the bulk of which are generated from the US along with some international sales.
The acquisition is expected to be earnings per share accretive in the first year within the group.
Billabong chief executive Derek O'Neill said Sector 9 operated in the specialty boardsports channel with a unique product offering, differentiating from its popular Element skate brand.
"Sector 9's products, primarily its longboards, really differentiate it from other brands in the boardsports channel and have appeal to surfers, skateboarders and the broader youth market," he said.
Deutsche Bank analyst Kristan Walker said the bolt on looked like a good acquisition with a strong overlap in sales channels.
"What do you do when you have a good balance sheet and the economy is doing it tough? Be opportunistic," he said.
"We believe this provides further evidence that Billabong is living up to their mantra of wanting to keep its brands authentic by targeting the enthusiast through specialty stores.
Mr Walker said Billabong had a very good global distribution network.
"It is bolstering this network with its own retail rollout - particularly in Europe - where wholesale channels are weak," he said.
"Therefore, there are excellent opportunities to leverage bolt ons across this network and pick up large revenue synergies."
Deutsche estimates Billabong will book a $177.6 million net profit after tax (NPAT) in fiscal 2008.
JPMorgan is forecasting $175.2 million NPAT in full year 2008.
JPMorgan analyst Shaun Cousins said a key area of earnings risk for the group in this new financial year is related to its Americas division, which has benefited from teen spending holding up better than expected as well as Billabong gaining market share.
"The degree to which the teen consumer remains resilient is in question, particularly if the US were to head into a recession," he said in a research note.
Mr Cousins said despite the risks, Billabong was developing a portfolio of brands with growth prospects.
Sector 9 co-founders and owners Steve Lake and Dennis Telfer and co-owner Dave Klimkiewicz are being retained as part of the acquisition in their current roles.
Billabong said the bulk of Sector 9's revenues are generated by skateboard and associated hardgoods sales, while apparel is a small but emerging category.
This is the second bolt on by Billabong in less than a month.
In early June, Billabong bought American surfing and skate gear retailer, Quiet Flight.
"It is business as usual for Billabong and all the more evidence they are managing this business for the long term," Mr Walker said.
