Investors In Sequential Brands Applaud $146 Million Purchase Of GAIAM Yoga

Investors of Sequential Brands Group, Inc. SQBG cheered the acquisition of GAIAM Yoga for about $146 million in cash. The stock jumped more than 20 percent to reach $7 in pre-market trading before settling with a gain of around 12 percent. The news come on the heels of the company delivering a better-than-expected earnings for the first quarter.

Deal To Add Revenue

Sequential Brands Group revealed that the deal would add about $22 million of revenue apart from $20 million of adjusted EBITDA on a full year run rate basis. The company said it secured fresh license deals for core categories, which would be effective after the closing of the transaction. Its new license partners were also acquiring working capital on closing of the deal directly from GAIAM with the direct payment of about $21 million.

The company indicated the acquisition would be funded through a combination of cash and debt financing. Sequential said that it obtained financing commitment from Bank of America Merrill Lynch and GSO Capital Partners LP, an affiliate of Blackstone Group. The transaction is expected to close within 60 days, subject to regulatory approvals and customary closing conditions.

Management Comments

CEO Yehuda Shmidman reacted to the developments and said, "We believe this is a home run for Sequential. The acquisition is immediately accretive to earnings, and aligns with our long-term playbook of acquiring brands with significant, untapped potential where we can immediately unlock value and position them for long-term organic growth."

Similarly, Sequential's Active Division President, Eddie Esses, said, "Studies show that over 35 million people in the U.S. practice yoga today, up 76% in the past 4 years, and another 80 million aspire to practice yoga. By acquiring one of the leading brands in yoga, fitness and wellness, the opportunities are vast as we think about gaining market share, adding new distribution and expanding globally."

Acquisition To Be Accretive To Earnings

As a result of the acquisition, the company said that it would be accretive to its earnings immediately. The company also boosted its annual revenue target to $172 - $177 million from $150-$155 million and adjusted EBITDA of $112-$115 million from $92.5-$95.0 million.

Sequential said that the acquisition would expand its adjusted EBITDA margin by over three percentage points and enable it to tap growing athletic market.