Rip Curl Group Pty., the board-sports brand controlled by two surfers who founded it in 1969, is exploring a sale for as much as A$500 million ($527 million), said a person with direct knowledge of the matter.
The closely held Australian company has hired Bank of America Corp.’s Merrill Lynch unit and is seeking about 10 times its projected A$48 million 2013 earnings before interest, tax, depreciation and amortization, the person said, asking not to be identified before a public announcement by Rip Curl. Merrill Lynch is assessing “unsolicited approaches” for the company, Rip Curl said in a statement today.
Australian clothesmakers have become a target for buyout groups after weak retail sales depressed valuations. Billabong International Ltd., Australia’s largest surfwear brand, has received competing bids from TPG International LLC and an unnamed party that value the company at A$694 million, while Pacific Brands Ltd., which licenses the Everlast label, received an unsuccessful approach from KKR & Co. in January.
“The whole surfwear industry is having problems at the moment,” Jordan Rogers, an analyst at Commonwealth Bank of Australia, said by telephone from Sydney. “It got a lot bigger than a lot of people expected it would and became more mainstream, and now it’s competing with other fashion brands rather than just the core surf companies.”
Rip Curl has been contacted by “several international organizations which have indicated a desire to invest,” the company said in the e-mailed statement.
The company was founded as a surfboard-maker in Torquay in 1969, according to its website. Quiksilver Inc., now the world’s largest surfwear brand with $1.95 billion of sales last year, was founded in the same town in the same year, according to its own website.
Torquay, 50 miles southwest of Melbourne, had a population of 1,362 in the 1966 census and was a popular staging post for the nearby Bells Beach surf destination. Rip Curl’s registered office address in the town is at 101 Surfcoast Highway.
The company’s founders, Doug “Claw” Warbrick and Brian “Sing Ding” Singer, moved into making wetsuits appropriate for the local cold waters of the Bass Strait the following year, assembling rubber pieces using a pre-World War II sewing machine, according to Rip Curl’s website.
The company hopes to raise A$480 million to A$500 million from any sale, the person said. That would be equivalent to about 10 times its forecast 2013 Ebitda.
The average trailing Ebitda multiple in 17 apparel takeovers in the last five years worth at least $100 million was 14.5 with a range of 3.3 to 19.8, according to data compiled by Bloomberg.
The A$694 million bid for Billabong is about 6.8 times the A$102 million in Ebitda expected by the average of 12 analyst estimates surveyed by Bloomberg.
Net income attributable to Rip Curl’s owners fell 49 percent to A$7.9 million in the 12 months through June 2011, according to its most recent annual report.
While the company didn’t break out a figure for that year’s Ebitda, a calculation by Bloomberg based on numbers in the report puts the figure at about A$28 million. Unaudited pro-forma Ebitda in 2012 “has increased over the prior year,” Rip Curl said in a statement.
Net operating cash flows dropped about 90 percent to A$5.1 million during 2011 as costs failed to track a 10 percent decline in receipts, the document shows.