By John Steinbreder
Now that the $55 million merger between Huffy Corp. and Gen-X Sports has been completed, it is time to wonder how the pieces of the two companies will fit together and what strategies will be implemented by executives of what is now a $500 million entity.
Among the many unanswered questions for analysts and golf enthusiasts alike is the fate of Gen-X brands Tommy Armour, Ram, TearDrop and Zebra. Such queries persist largely because of speculation that Huffy – the Ohio company best known for bicycles and basketball backboards – will soon shed the golf properties, even though former Gen-X president John Collins, who is now a senior vice president for Huffy, insists they will remain an important part of the equation.
“No way are we getting out of that sport,” he said.
On the contrary, Gen-X has spent the past 18 months resuscitating Tommy Armour and soon intends to roll out a host of new products under the venerable brand, Collins said. New initiatives for the other golf brands also are under way.
“Tommy Armour is positioned as our premium brand, and we are bringing in three new collections of irons for 2003,” he said. “That brand had terrific support in the golf specialty retail channel in 2002, and we see the brand fitting in there as well as in some green-grass shops. So that is where you will see it – green grass, off-course golf specialty and selected sporting goods dealers.”
Though golf may end up playing a key role in the Huffy/Gen-X alliance, it is safe to say the union wasn’t created with its growth in mind. According to analysts, each side sought the deal to address other priorities.
The acquisition of privately held Gen-X, which will record revenues of some $150 million in 2002, cost Huffy $19 million in cash and 5 million shares of its stock. Announced in June, the deal was approved by Huffy shareholders in mid-September, and chief executive Don Graber said the deal will pay off handsomely.
“This acquisition is a significant step toward our strategic vision of positioning Huffy for future growth as a diversified, branded sporting goods company,” Graber said in a statement. “In addition to diversifying our customer base, increasing our product offering, broadening our brand portfolio, expanding our presence in Canada and internationally, and improving our seasonality profile, the (transaction) . . . brings a strong management team to complement ours.”
Industry watchers see the merger working for Huffy in a number of ways. The sporting goods concern that trades on the New York Stock Exchange has struggled to grow in recent years and foremost could use the acquisition as a way to generate sales, improve earnings and enhance cash flow. Especially valuable to Huffy are Gen-X’s youth-oriented assets of snowboards, scooters, in-line skates and ski properties.
The transaction offered plenty to Gen-X as well.
“We grew quickly as a company, but we found that when we got to our current size, we needed a lot of cash,” said Collins, who worked for Nike before starting Gen-X with two partners. “Private investors and our own resources could only take us so far. So we felt it was a good time to do a hand-off to a partner with complementary skill sets. I see the merged company doing very well and hope we can grow it into a $750 million to $1 billion company over the next three to five years.”
Rob Halder, a research analyst for Tejas Securities Group of Austin, Texas, described the merger as a “fantastic” deal for both sides.
“Huffy had a portfolio of stable but low-growth assets that will now benefit from the addition of the higher-growth properties of Gen-X,” he said. “And Gen-X will get the kind of access to the Targets and Wal-Marts it did not have before. That could prove very helpful, for example, to some of its golf products, such as Ram, which may well find a spot in those channels as a result.”
Because the deal appears driven by factors other than golf, however, some insist the only reason Tommy Armour, Ram, TearDrop and Zebra were snapped up is that they were part of the buffet when Huffy went through the line. Those who advocate this theory say there’s no compelling reason for Huffy/Gen-X to keep the golf brands for long.
Though such arguments persist, Collins dismisses them emphatically.
“Golf will absolutely remain important to Huffy,” he said. “And I think that we at Gen-X deserve some credit for what we have done with the brands. We are getting good support in sporting goods stores and are making important steps into the off-course specialty shops. We enjoyed a sales increase of more than 50 percent this year over 2001.”
Though he declined to discuss specific plans for each of the company’s golf brands, Collins provided some insight regarding their future.
For example, he said, Ram will be positioned as a “value product,” with soon-to-be-introduced sets to be found “in most channels of distribution, including mass merchant.”
TearDrop is planning to introduce a “whole new putting system” and also will be available in various channels. As for Zebra, Collins said, “that, too, has a lot of brand equity, and I expect it to do well in places such as Golfsmith.
“We at Gen-X were enthusiastic about what we have been able to do with our golf lines, and the people at Huffy share that enthusiasm,” he said. “We think it will do well.”