• Market Crumbs

Fanatics Makes Bold Acquisition

Image via Joshua Allwood on Unsplash

Michael Rubin got his start in business at a young age. He opened a ski shop before the age of 15 and grew it to five locations by the time he entered college. While in college he purchased $200,000 in overstock equipment for $17,000 and sold it for $75,000. He went on to sell his e-commerce company GSI Commerce to eBay for $2.4 billion by the age of 38.

Rubin struck a deal with eBay to buy back three consumer businesses—Fanatics, Rue La La and Shop Runner, and merged the three companies into a new entity named Kynetic.

Rubin has grown Fanatics into a powerhouse, striking partnership deals with more than 300 professional leagues, sports and teams. Fanatics operates the e-commerce websites of virtually every major professional sports league.

Just last month, Fanatics raised $350 million in a Series E funding round that saw its valuation jump to $6.2 billion from $4.5 billion in 2017. The round was supposed to be for $250 million, but was reportedly oversubscribed due to Fanatics' 30% jump in e-commerce sales so far this year. Revenue was up slightly through the first six months of this year following last year's $2.5 billion in sales.

At the time of the deal, Fanatics said the funds would be used to accelerate their rights acquisition strategy and pursue mergers and acquisitions.

Fanatics didn't waste much time putting the funds to work, as earlier this week the company acquired Top of the World, the largest maker of college sports caps, in a deal that was reportedly for between $25 and $50 million. About 600 schools have agreed to transfer licensing rights held by Top of the World to Fanatics.

The interesting part of the deal is Fanatics and Rubin appear to be following his playbook of buying assets at distressed prices. Top of the World was undergoing liquidation proceedings at the time of the deal as the company's sales took a hit from the coronavirus.

As a result of the deal, about 200 Top of the World factory workers that had been laid off in August were rehired. Rubin even personally flew to Norman, Oklahoma last week to welcome them to Fanatics. Fanatics purchased all of the inventory ordered by Top of the World, such as blank hats, from overseas manufacturers and will have the Norman employees embroider them.

With a fresh round of funding and its business seemingly holding up well during the coronavirus, an IPO for Fanatics may not be too far away.

Leftover Crumbs

  • Tiffany deal falls apart. LVMH has walked away from its $16 billion acquisition of Tiffany. Tiffany said it will file a lawsuit against LVMH to force it to complete the deal, which would have been the largest-ever in the luxury industry. LVMH was asked by the French foreign ministry to delay the deal to 2021 as threats of U.S. tariffs against French products looms. LVMG also said Tiffany asked the deal closing to be delayed by five weeks. LVMH's board agreed to stand by the original deal terms, saying "As it stands, the Group LVMH will therefore not be able to complete the acquisition of Tiffany & Co."

  • Mortgage activity shows strength. Mortgage applications to purchase a home jumped 3% last week and now stand 40% higher than the same period last year, according to the Mortgage Bankers Association's seasonally adjusted index. Applications to refinance a mortgage also jumped 3% last week and now stand 60% higher than the same period last year. "The average loan size continued to increase, hitting a survey high at $368,600," MBA economist Joel Kan said. "Highlighting the strong overall demand for buying a home, conventional, VA and FHA purchase applications all increased last week."

  • It's an "absolute raging mania." Hedge fund manager Stanley Druckenmiller appeared on CNBC yesterday, warning of the mania in the markets caused by the Federal Reserve and saying it will end badly. "Everybody loves a party ... but, inevitably, after a big party there's a hangover," Druckenmiller said. "Right now, we're in an absolute raging mania. We've got commentators encouraging companies to do stock splits. Companies then go up 50%, 30%, 40% on stock splits. That brings no value, but the stocks go up."

  • Apple seeks damages from Epic. Apple submitted a filing detailing it will seek damages from Epic Games for allegedly violating its contract with the iOS App Store. "Epic's flagrant disregard for its contractual commitments and other misconduct has caused significant harm to Apple," the filing read. "Left unchecked, Epic's conduct threatens the very existence of the iOS ecosystem and its tremendous value to consumers."

  • Amtrak needs money. Amtrak CEO William Flynn told U.S. Congress the railroad needs up to $4.9 billion in government funding to avoid service and job cuts. According to Flynn, Amtrak needs "up to $4.9 billion in funding to operate and invest in our network, support our partners, and address various congressional concerns like avoiding employee furloughs and maintaining daily long distance service."