Australian online retailer SurfStitch has bought British-based rival Surfdome.com

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Australian online retailer SurfStitch has bought British-based rival Surfdome.com, helping to nearly double its sales ahead of a $350 million-plus initial public offering in December.

SurfStitch bought Europe’s biggest online action sports retailer from US-listed Quiksilver for $45 million.

The deal comes just two months after buying back a 51 per cent stake from one-time partner, Billabong International. It also bought Billabong’s Swell.com, giving SurfStitch an American footprint.

“I’d like to think with the consolidation of the Surfdome business, an IPO is one of several possibilities the board is accessing,” SurfStitch co-founder Justin Cameron told The Australian 

Financial Review.

Group turnover is estimated to be $200 million post-acquisition. Peer companies such as online fashion retailers asos.com and boohoo.com tend to trade on two- to three-times sales.
According to pre-marketing research by sole lead manager JPMorgan, SurfStitch has an estimated value of $350 million to $450 million.

Mr Cameron said SurfStitch is profitable and has half a million daily users accessing its platforms. Surfdome had similar scale and profitability as SurfStitch Australia.

“We see Surfdome as being very complementary to SurfStitch,” he said. “We are now the No 1 player in all the areas we operate.”

Surfdome has 900 brands, including Billabong, The North Face, Ted Baker and Converse, across men’s, women’s and children’s wear.

The company turned over $82 million in revenue last financial year. Quiksilver took a 51 per cent stake in Surfdome in 2011 but flagged the sale two years later to focus on the Quiksilver, Roxy and DC brands.

Surfdome founder Justin Stone will remain in the business, rolling his equity into the larger organisation and will run its European operations.

SurfStitch co-founder Lex Pedersen will head the North American arm, while Mr Cameron will become chief executive.

Industry veteran and former Myer chairman Howard McDonald will lead the board, while former David Jones finance director Stephen Goddard will become a non-executive director.

A third non-executive director is yet to be appointed. Karen Birner will remain chief financial officer.
SurfStitch was founded in 2007 by former investment banker Mr Cameron and Mr Pedersen, who was general manager of surf retailer Surfection. The pair became friends surfing at Sydney’s Mona Vale, and started the company on an eBay-type model in Mr Cameron’s shed. They invested $50,000, and have reinvested in the company over the years. After the Surfdome deal, the pair will own close to 30 per cent of the company.

“We will remain long-term holders of the SurfStich group and are excited about the next five plus years, and will continue to hold the majority of shareholding no matter what the investment decisions,” Mr Cameron said.

Other shareholders include money manager Charlie Lanchester, who invested just under $1 million.
More than 10 leading fund managers – including Perpetual, Paradice Investment Management, Regal Funds Management and Ausbil Dexia – took a 65 per cent stake in SurfStitch under a pre-IPO capital raising.

“These institutions came in on a tight time frame and provided capital to take out Billabong,” a fund manager said. “They should be well-rewarded for taking that risk.”
Mr Cameron said for an Australian retailer, SurfStitch is a unique proposition, and is now the world’s largest online action sports retailer.

“Over 50 per cent of our revenue is generated in international markets, of which those markets are growing at over 50 per cent per annum,” he said.

Mr Cameron added that SurfStitch is focused on the male demographic, helping reduce risk to fast-fashion competitors who tend to favour the female demographic.

SurfStitch was advised by JPMorgan, while Quiksilver was advised by Altium Partners. Pre-marketing research will be published on Monday.

SurfStitch management is expected to kick off a roadshow on November 16 followed by a bookbuild and a listing on the Australian Securities Exchange by mid-December.

SurfStitch is not the only IPO hopeful in the next six weeks with Quadrant Private Equity looking to float its Estia Health aged care operator by Christmas, and Kiwi aged-care group Arvida is due to meet with local fund managers this week, ahead of a potential $NZ300 million ($266 million) float. Medibank Private’s $4 billion December float will be the largest of the year.

BY Carrie LaFrenz © @CJLF ( The Australian Financial Review )