Rapha’s buyout by Walmart heirs marks the first M&A deal for an activewear brand in the modern luxury category.

LONDON — “It was very important to me,” said Rapha CEO Simon Mottram in speaking to the NYT, “that…both [are] passionate cyclists. If they understood the broader vision of the sport, then I felt they would also feel sure that our model is the right way to do things.”

This statement, of course, was in reference to Rapha’s new owners, Steuart and Tom Walton, coincidently both avid cyclists, and as the last name gives away, both members of the Walton family of Walmart. On Monday the two Walmart heirs, both grandsons of Walmart founder Sam Walton, were unveiled as Rapha’s new owners, having acquired a majority stake in the luxury cycling company through their family investment arm RZC Investments.

A nine month close.

It puts an end to an ‘on again, off again’ sale saga that stretched across nine long months. The first whispers of a potential sale came in late November 2016 when it was reported that LVMH’s private equity and investment arm L Catterton had engaged in conversations. LVMH eventually declined to move forward, but as chatter about a possible Rapha buyout rambled on, it was suggested that subsequent prospective buyers were being met with a bit of sticker shock: Rapha shareholders were looking for a 20X return on profits. Apparently that was too big of an ask for a twelve-year-old luxury brand that only made a $1.4M profit on $62.1M revenues for 2016.

Retail is very literally in [the Waltons’] blood, and as cyclists, they appreciate and respect the sport and are likely not viewing their new Rapha property as a mass market opportunity as LVMH might have.

Given the statement Mottram made, however, it’s possible that the lengthy sale process, aside from the standard due diligence and boardroom wooing, was less about the sale price, and more about affinity, stewardship — finding the right buyer, in other words. Several candidates alongside L Catterton had been cited since November, most in private equity. But the fact that the Walton duo swooped down to seal the deal makes them a both surprising buyer — they weren’t mentioned to be in the running anytime prior — and, at the same time, a rather sensible one. For one, retail is very literally in their blood, and as cyclists, they appreciate and respect the sport and are likely not viewing their new Rapha property as a mass market opportunity as LVMH might have. As we reported back in early December, LVMH ownership was always fraught with risk for this specialist brand:

“If we reflect back on LVMH’s long track record of acquisitions stretching back to the early 1980s, the pattern is an easy one to observe: buy a dormant luxury name or a promising niche luxury property on the upswing, go mass market, charge as much as possible, align with a celebrity or two to raise the “profile” of the brand, and sit back as the billions (or hundreds of millions) pour in. LVMH has, in other words, not exactly shown a light touch, and it hasn’t shown a propensity to simply let things be as they are.

But Rapha is a niche company that’s based on a technical, performance-driven platform, and it boasts a core customer base that is super sensitive to smoke-and-mirrors plays. So does LVMH tread lightly or will they just stay the usual course here?”

The first M&A acquisition in the modern luxury activewear space.

The more pertinent point of emphasis in the Rapha sale is that it marks the first M&A deal for an activewear brand in the modern luxury category. As Lean Luxe readers will note, the activewear space is simultaneously booming and bloated. With so many yogapants brands flooding the market, there will have to be some measure of contraction at some point. Still — if we can make any predictions based on this Rapha sale — what does the future of the activewear market hold?

1. Generalists might be in trouble. This is fairly simple to understand, and touched on above: How many yogapants and general activewear companies can the market continued to support if there’s little differentiation between any of them? Remember, we’ve already seen one big name, Kit and Ace, falter very publicly.

We’re now in an era where brands that specialize in a category or product are favored by shoppers. This is what happens when the marketplace opens up, when new brands are able to reach more of their target audience more easily, and when the market becomes a consumer-centric one, rather than a brand-centric one where shoppers are limited in choice. In the activewear space, we see brands like Rapha (cycling),Tracksmith (running), Iffley Road (running), and Soar (also running) offering sport-specific solutions, to different customer segments. There is some overlap there between the running brands, but at least each is tapping into a specific activity rather than adding more to the generalist ‘luxury leisure’ space.

2. Venture-backed brands will need to exit soon. Tracksmith, Outdoor Voices, and their activewear peers who are backed by venture capital, by taking VC money, will be expected to provide some sort of liquidation for their investors soon. They’ll need to exit in the coming years, and as such could be ideal M&A targets going forward. L Catterton, in investing in Mizzen + Main, and in having conversations with other brands, continues to sniff around the modern luxury space, is a strong candidate. Marc Lore, head of e-commerce at Walmart, has been on a tear this year, particularly with the purchase of Bonobos. Lore is likely only considering larger sized acquisitions in the Bonobos range, which may put several brands out of the running at the moment, but he’s got his finger on the modern luxury pulse and as such is certainly a strong buying candidate.

3. Marketplaces will be fine. The Bandiers and Carbon38s of the world, those who aggregate activewear companies in one place, will likely be fine. It’s the individual brands themselves that might be at risk. Emporiums and hubs always have an inherent advantage in that they are centralized sources people tend to gravitate towards. Without a built-in community, it’s simply much harder for individual brands to convince shoppers to come directly to them — even in today’s consumer-centric era. Networks and aggregators tend to do well, so marketplaces like Bandier and Carbon38, even though they are still selling generalist yogawear brands, are (theoretically) in a better position compared to a sole yogawear upstart would be.

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  • phan2

    Given the valuation, for me the question is whether the Rapha sale is representative of future trends or if it was a one off purchase by buyers with non-financial motives. I can’t help but feel the latter made the difference. That said, perhaps the buyers saw an opportunity to grow Rapha by entering the faster growing mountain biking sector. Kitsbow would seem like the ideal brand to bolt on to the Rapha platform (suppliers, production, and own retail).

    On specialists, I admire Oiselle which seems to have followed a similar playbook to that of Rapha.

    Interesting to see you mention Carbon38 and Bandier – they are not without their issues – both recently having to clear out substantial backlogs of inventory. Some think the two are complementary and a merger would substantially strengthen their market position.