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Project Proposal (Anta acquires Finnish Amer Sports)
1. Description of the case study subject (i.e., organization, institution, etc.):
Between late 2018 and early 2019, an investor consortium consisting of Anta Sports,
together with FountainVest Partners, Anamered Investments and Tencent, acquired Amer Sports,
an internationally renowned sportswear company, making it the largest acquisition in the history
of the Chinese apparel industry and the sportswear industry, as well as the largest M&A in the
Asian market between 2018 and 2019. Anta Group is an integrated, multi-brand sporting goods
group specializing in the design, production and sale of sports footwear, accessories and other
sports equipment. The company was founded in 1991 and listed in Hong Kong in 2007. Since
2015, Anta Group has been the largest sporting goods group in China. In the Chinese sportswear
market, Anta Sports' market share in 2020 is 15.4%, second only to Nike and Adidas. Amer
Sports, the world's top sports equipment brand management group, has been providing
professional athletes and amateur sports fans with the world's most advanced sports technology
products. Founded in Finland in 1950, the company began its sports business in 1974 and is now
a multinational sports goods manufacturer and marketer with over 8,000 employees. It owns a
series of brands including Arc'teryx, a Canadian luxury outdoor equipment brand, Salomon, a
French mountain outdoor trail brand, Wilson, an American tennis equipment brand, Atomic, an
Austrian ski equipment brand, etc.
2. Rationale:
First of all, Anta, as the leader of Chinese sports brands, is familiar with our team
members. Almost every city in China has Anta brand stores. Especially the company’s slogan
"Anta, Never Stop" has attracted many consumers. We You can learn the details and terms of the
acquisition. Secondly, this acquisition case is very attractive to our team because we believe that
Anta Group, the world’s third largest market value, can acquire Finland’s Amer Sports. This is a
milestone event in the sports industry, because regardless of the standard, importance or potential
of the acquisition , This is unprecedented. Finally, although the consortium led by Anta acquired
Amer Sports (Yahoo Finance) at a premium of 43%, Amer Sports itself has a large number of
high-premium brands, which allows us to better analyze the advantages of the industrial chain
after the acquisition of Anta. Financing advantages and information integration advantages,
understand the effects of economies of scale. Pay attention to the scope of application of data
protection due diligence in Anta's mergers and acquisitions, risks and countermeasures.
3. Timeline:
In the Anta acquires Finnish Amer Sports case, the first thing related to case studies is
data and information collection. In this task, we need to complete the information collection of
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acquisition details and terms. The second is the marketing strategy and operation of Anta and
Finnish Amer sports. Then we can plan to understand the industry situation and industrial chain
structure of the sports industry. Finally, our goal is to analyze the advantages of the industrial
chain, financing, and information integration after the acquisition of Anta, and understand the
effect of economies of scale. It also gives some suggestions on the application scope, risks, and
Countermeasures of data protection due diligence in Anta's mergers and acquisitions. We will
meet every Wednesday after class to discuss how to allocate work and complete the main
business plan in the last two weeks.
Project Outline
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The final project of our group is to analyze Anta's acquisition of Finland's Amer Sports. Anta is
the first sportswear brand in China with a market value of 100 billion yuan, and it currently
exceeds 500 billion yuan. Anta has become a traditional Chinese sports brand leader with its
precise judgment and bold reform courage. Anta's acquisition of Amer Sports is a milestone
event in the sports industry. Whether it is the company's production scale economy effect,
market power effect, future financing and brand equity development strategies have historically
positive significance.
Economic performance:
● Posted revenue of 22.81 billion yuan ($3.52 billion) in the first half of 2021 on Tuesday,
up 55.5 percent over the same period of last year. (Yang, 2021).
● Gross profit margin rose to 63.2%, a year-on-year increase of 6.4%.
● Anta purchased all shares of Amer Sports at a price of 40 euros per share for a total
purchase price of approximately 4.6 billion euros.
● On the Chinese sales platform, Anta's sales have increased by 59% compared to the same
period last year. It is estimated that sales of Adidas products have fallen by 78% during
this period, and Nike’s sales have fallen by 59%. (Bain, 2021).
Financial challenge
● Local reports in Finland stated that Amer Sports shares were valued at 30 Euros per
share, with a closing price premium of about 40%. Such high-premium mergers and
acquisitions and overestimating the value of Amer Sports are risky.
● Anta uses leveraged financing, and both gains and losses can be magnified. During the
five-year repayment period of 800 million Euros of debts assumed by Anta M&A, it
provided 1.3 billion Euros of debt obligations for the consortium. This makes the debt
burden of the enterprise exist for a long time. Increased the risk of leveraged financing.
● Anta uses cash payment, but it will bear a lot of debt risk in the short term. The
acquisition transaction is calculated in euros, and the exchange rate during the transaction
has been changing, which may increase exchange rate risk.
● The two companies belong to different countries, and there is a certain risk that Anta
wants to obtain authentic and complete financial information in Amer Sports.
Reasons for Anta's acquisition of Amer Sports:
Anta's acquisition of Amer Sports can obtain huge brand equity. It is impossible to build Anta
into a brand that can compete with Nike and Adidas in a short period of time. It takes time to
build a brand, so acquisition becomes the only option. Anta acquired through high leverage this
time. High risks represent high returns. With the help of the acquisition of Amer Sports, Anta
will increase its visibility and explore new opportunities at the 2022 Beijing Winter Olympics.
After the completion of the acquisition, the operation of Amer Sports will be independent of
Anta Sports and other investors, and a separate board of directors will be established for flat
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management. The direct operation model will bring about a significant increase in gross profit
margin and improve operational efficiency. The milestone significance of this acquisition for
Anta is that Anta not only avoided frontal competition with Nike and Adidas in the existing
market, but also entered the field of high-end sports equipment with market segments. With the
help of the channels and brand influence of these high-end brands, Anta will help Anta open the
global market with a higher cost performance.
Acquisition transaction details and country analysis:
The offer price per share is 40 euros, and the total value of the offer is 4.6 billion euros, which is
the same as the purchase price proposed by Anta Group on September 12. The offer price is a
39% premium to the closing price of Amer Sports shares on the Nasdaq Helsinki Exchange on
the disclosure date, and a premium of 43% to its 3-month undisturbed volume-weighted average
trading price. (Lixuan, 2021). From the Sydney Olympics to the Beijing Olympics, it is a golden
age for the growth of the sporting goods industry. Anta is beginning to realize the diversification
of the Chinese and even international markets. Sports fashionistas and professional sportsmen
have put forward higher demands for equipment. Anta's acquisition of high-end brands and
perfecting product structure have become a multi-brand strategy, which represents the Chinese
economy. The waywardness. As Anta's CEO Ding said, "Don't be the Nike of China, but be the
Anta of the world."
Valuation and risk management
The main logic of Anta's valuation improvement is a multi-brand and internationalization
strategy, especially Amer sport's revenue continues to exceed market expectations.
Looking ahead, we believe that the future performance of Amer sport will not rule out the
possibility of exceeding expectations, benefiting from the improvement of inefficient stores, the
upgrading of footwear categories, the moderate expansion of stores, and the extension of
multiple series. In addition, although the market is worried about the short-term impact of
overseas public health events and the cultivation time of the Chinese market, we believe that the
scarcity of many high-quality brands of Amer sport superimposes the company's excellent multibrand operation ability, and Amer sport will bring significant value to the company in the
medium term.
For risk management, we have noticed many risks. For example, the possible impact of
economic slowdown on sportswear retail; Risk of international public health emergencies (covid19); Management challenges and financial fluctuations of international M & A and multi-brand
development; And the risk that Anta's future performance is less than expected. All these require
Anta to make early warnings and corresponding preventive measures. We will give some
suggestions later.
Optionalities in the transaction
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When we inquired about the options in Anta's trading, we learned that the recent options
trading ask of Anta was higher than the bid. Its implied volatility in recent years is about 30 to
40, which shows the market's view that the potential trend of stocks is unlikely to have
significant price fluctuations. It also means that Anta's shares will not fluctuate much before the
option expires.
Market reaction to key events and announcements
The acquisition by Anta Sports also sparked strong interest in the capital markets, gaining
favor with many institutions. After the announcement , Amer Sports' shares rose 8 percent to
38.20 euros ($43.40). Anta Sports closed down 1.9 percent in Hong Kong on Friday. In the
period since then Anta shares have fallen 9 percent as investors worry about the company's
increased debt and slower growth, as well as increased operational uncertainty. This, coupled
with a weaker retail market, is also a negative factor.
On Nov. 14, 2018, Bloomberg cited sources as saying that tech giant Tencent Technology
intends to join the acquisition consortium for Anta. Spurred by the news, Amer Sports' shares
surged more than 5% to $35.88 in early trading. And on the 15th Anta's share price also rose
about 3% in response, closing at HK$34.65 per share. Tencent joined the acquisition to give
investors more confidence.
Investment recommendation
The acquisition of Amer Sports by Anta was a premium acquisition. Coupled with the
fact that Amer Sports was not doing well at the time and was carrying a huge amount of debt.
The total acquisition cost of Anta was 4.64 billion euros, equivalent to more than 40% of Anta's
current market value, and the use of an all-cash acquisition would have created a huge financial
cost pressure. The acquisition activities take up some cash, but overall cash is still sufficient and
will not affect the normal operation of the company.
Future outlook
Amer Sports' major revenue comes from Europe and the United States, which basically
does not overlap with Anta and can form a complementary category and channel. At the same
time, by integrating Amer Sports' sourcing and supply resources, Anta can further leverage the
advantages of operational synergy and leverage its global supply chain platform to lay a good
supply chain foundation for Anta's overseas expansion. On the other hand, the development of
China business injects long-term growth momentum. Overall, the Anta acquisition is
complementary for both companies and very beneficial for their future growth.
Post mortem
At one point in November 2019, Anta Sports sold a 5.25% stake in Amer Sports to
investors including Anta Sports executives and Sequoia Capital at a discount, after the
transaction Anta Sports still holds 57.7% of the voting rights in Amer Sports and enjoys an
economic interest of 52.7%. The transaction will maintain effective control over the equity
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interest and optimize the Group's balance sheet as Anta has indicated its intention to use the
proceeds for general working capital.
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Anta's acquisition of Amer Sports analysis report
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Economic performance and Financial challenge
Anta is China's first sportswear brand with a market value of 100 billion yuan, and it
currently exceeds 500 billion yuan. With precise judgment and bold reform courage, Anta has
become the leader of traditional Chinese sports brands. In particular, the company’s "Anta,
Never Stop'' slogan has attracted many consumers. AmerSports' share in the Chinese market
continued to increase before the acquisition, and it increased by 30% after 2016. However, as
China With the rapid changes in economic conditions in China, consumers are looking for a
balance between performance and price, and the market has become more challenging and
competitive than before. Anta Group's acquisition of Finland's Amer Sports is a milestone event
in the sports world, because regardless of the standard, importance or potential of the acquisition,
this is unprecedented. Although the Anta-led consortium acquired Amer Sports at a premium of
43% ,Amer Sports itself has a large number of high-premium brands. (Yahoo finance). It can
enable Anta to better possess the advantages of the industrial chain, financing and information
integration after the acquisition. Advantages, understand the effects of economies of scale. Anta
CEO Ding said, "Don't be the Nike of China, but be the Anta of the world." In order to reduce
the impact of COVID-19, Anta has vigorously developed the sales of Amer Sports in the Chinese
online market. On the Chinese sales platform, Anta's sales have increased by 59% compared to
the same period last year. It is estimated that sales of Adidas products have fallen by 78% during
this period, and Nike's sales have fallen by 59%. (Bain, 2021). Although Anta Group has
accumulated a certain amount of experience in the direct operation model and online business,
there is still a gap between its mid-to-high-end fashion positioning and other brands. How does
Anta develop Armer Sports' mid-to-high-end positioning? challenge. Posted revenue of 22.81
billion yuan ($3.52 billion) in the first half of 2021 on Tuesday, up 55.5 percent over the same
period of last year. (Yang, 2021). Although Anta Sports controlled nearly 58% of Amer Sports
after privatization Shares, but did not consolidate its statements. In essence, Anta’s strategy is
currently viewed as a financial investment rather than a pure merger.
Reasons for Anta's acquisition of Amer Sports:
Anta's acquisition of Amer Sports can obtain huge brand equity. It is impossible to build
Anta into a brand that can compete with Nike and Adidas in a short time. It takes time to build a
brand, so acquisition becomes the only option. Anta's highly leveraged acquisition. High risk
means high return. With the help of the acquisition of Amer Sports, Anta will increase its
visibility and explore new opportunities at the 2022 Beijing Winter Olympics. After the
completion of the acquisition, Amer Sports' operations will be independent of Anta Sports and
other investors, and a separate board of directors will be established for flat management. The
direct operation model will bring about a substantial increase in gross profit margin and an
increase in operating efficiency. This acquisition is a milestone for Anta. Anta not only avoided
the frontal competition with Nike and Adidas in the existing market, but also entered the segment
of high-end sports equipment. With the help of the channels and brand influence of these highend brands, Anta will help Anta open the global market with a higher price-performance ratio.
According to China's Xinhua News Agency, Amer Sports shares are valued at 30 euros per
share, with a closing price premium of approximately 40%. Such high-premium mergers and
overestimation of the value of Amer Sports are risky.
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Acquisition transaction details and country analysis:
Anta uses leveraged financing, and gains and losses can be magnified. During the fiveyear repayment period of the 800 million euro debt assumed by Anta M&A, it provided 1.3
billion euros in debt to the consortium. This makes the debt burden of the enterprise exist for a
long time. Increased risk of leveraged financing. Anta uses cash to pay, but it will bear a large
debt risk in the short term. The acquisition transaction is calculated in euros, and the exchange
rate has been changing during the transaction, which may increase exchange rate risk. From the
Sydney Olympics to the Beijing Olympics, it is a golden period for the growth of the sporting
goods industry. Anta is beginning to realize the diversification of China and even the
international market. Sports fashionistas and professional athletes put forward higher
requirements for equipment. Anta's acquisition of high-end brands and improved product
structure have become a multi-brand strategy that represents China's economy.
Valuation and risk management
I collected data through Thomson Reuters’ data terminal and found that after Anta
acquired Amer at the end of 2018, the intrinsic value began to increase gradually. The intrinsic
value rose from HK $45.64 on December 31, 2018, to today’s HK $84.42. On the other hand,
Anta’s price fluctuations rise rapidly, far exceeding the growth of intrinsic value. Starting from
HK $37.55 on December 31, 2018, the highest reached HK $188 on June 29 in 2021, and then
recently dropped to about HK $125.6. These data show that Anta's value has been overestimated
so far. And I found that the main logic of Anta's valuation improvement is a multi-brand and
internationalization strategy, especially Amer sport's revenue continues to exceed market
expectations.
In terms of relevant valuation, we compared the PE, EV/EBITDA, Div Yield, EV/Sales,
P/CF and P/B of Anta company and companies in the same industry. What needs to be
mentioned is that we found that the ratio of div yield of Anta company in the same industry in
the world is low, only 0.96%, while the industry median is 2.34%, and Anta ranks 47th in the
global ranking. Assuming no increase or decrease in dividends, when the stock price falls, the
yield will rise. Contrariwise, when the stock price rises, it will fall. Because the dividend yield
changes relative to the stock price, the dividend yield usually looks abnormally high for stocks
with rapidly falling value. Anta Co. on the contrary, the lower div yield also proves that their
stock value has been rising. However, these do not rule out the risk that Anta company is forced
to reduce dividend payout or income due to the decline of stock value.
Looking ahead, we believe that the future performance of Amer sport will not rule out the
possibility of exceeding expectations, benefiting from the improvement of inefficient stores, the
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upgrading of footwear categories, the moderate expansion of stores, and the extension of
multiple series. In addition, although the market is worried about the short-term impact of
overseas public health events and the cultivation time of the Chinese market, we believe that the
scarcity of many high-quality brands of Amer sport superimposes the company's excellent multibrand operation ability, and Amer sport will bring significant value to the company in the
medium term.
For risk management, we have noticed many risks. For example, the possible impact of
economic slowdown on sportswear retail; Risk of international public health emergencies (covid19); Management challenges and financial fluctuations of international M & A and multi-brand
development. And the risk that Anta's future performance is less than expected. All these require
Anta to make early warnings and corresponding preventive measures.
Optionalities in the transaction
When we inquired about the options in Anta's trading, we learned that the recent options
trading ask of Anta was higher than the bid. Its implied volatility in recent years is about 30 to
40, which shows the market's view that the potential trend of stocks is unlikely to have
significant price fluctuations. It also means that Anta's shares will not fluctuate much before the
option expires.
According to the most traded options data recently displayed by Anta, the put option is
23676 of total 45637 today, which is more than the call option 21961. The ratio of put to call is
about 1.08. Compared with our previous valuation analysis and risk analysis, we can see that the
whole market is aware that Anta's current market value is overvalued, but it also has a certain
growth potential.
Market reaction to key events and announcements
The acquisition by Anta Sports also sparked strong interest in the capital markets, gaining
favor with many institutions. After the announcement , Amer Sports' shares rose 8 percent to
38.20 euros ($43.40). Anta Sports closed down 1.9 percent in Hong Kong on Friday. In the
period since then Anta shares have fallen 9 percent as investors worry about the company's
increased debt and slower growth, as well as increased operational uncertainty. This, coupled
with a weaker retail market, is also a negative factor.
On Nov. 14, 2018, Bloomberg cited sources as saying that tech giant Tencent Technology
intends to join the acquisition consortium for Anta. Spurred by the news, Amer Sports' shares
surged more than 5% to $35.88 in early trading. And on the 15th Anta's share price also rose
about 3% in response, closing at HK$34.65 per share.
Investment recommendation
Anta's acquisition of Amer Sports was a premium acquisition. Coupled with the fact that
Amer Sports was not in a good operating position at the time and was carrying a huge amount of
debt. Over the past few years, Amer Sports' development has been relatively sluggish, with the
company's operating revenue growth rate of only 3.5%, -1.8% and 4% from 2016-2018, and net
profit growth rate declining year after year at only 7.7%, 6.9% and -4.7%. In 2017, Amer's net
sales increased by 2% to €2,685 million and net profit fell by 26% to €93 million. Considering
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Amer's net debt of €820 million and foreign exchange exposure, this might be a drag on Anta's
margins. In addition, Anta's cash flow has declined. Anta's financial report shows that in the first
half of 2018, its net operating cash flow fell to 1.476 billion yuan from 2.058 billion yuan in the
same period of 2017, down about 28% year-on-year. The total acquisition cost of 4.64 billion
euros, equivalent to more than 40% of Anta's current market value, will form a huge financial
cost pressure by using all-cash acquisition. In 2018, Anta's gearing ratio was 27%, which was
significantly lower than other comparable companies. Based on the 2018 data, Anta's gearing
ratio will increase to about 45% after the completion of the acquisition. Compared with its peers
Nike (60%), Adidas (56%) and 361 Degrees (49%), Anta is still at a normal level. The
acquisitions took up some cash, but the overall cash is still sufficient and will not affect the
normal operation of the company.
Although the valuation is high, it is reasonable. The offer price is €4.64 billion, for a total
funding requirement of €5.663 billion. The total funding requirement for the acquisition is
€5,663 million, including the offer price of €4,640 million (€40/share), repayment of Amer
Sports' existing debt of €950 million, financing and other transaction costs of €73 million.
However, the acquisition at a premium is acceptable for Anta and will not make Anta's debt ratio
abnormal, and Amer Sports has scarcity. In summary, the acquisition of Amer Sports is
beneficial to the long-term expansion and development of Anta's business, especially overseas
business.
Future outlook
Amer Sports' main revenue comes from Europe and America, which basically has no
overlap with Anta and can form complementary categories and channels. At the same time, by
integrating Amer Sports' procurement and supply resources, Anta can further leverage the
advantages of operational synergies, and with its global supply chain platform, lay a good
foundation for Anta's supply chain for overseas expansion. On the other hand, the development
of China business injects long-term growth momentum. 2017 Amer Sports revenue in Asia was
€390 million, accounting for 15% of total revenue, of which revenue in China was only €120
million, accounting for 4%. Compared to other global established sports brands, the share of
revenue in China is generally over 10%. The development of the business in China has been the
main driver of growth in recent years. Considering that we expect to leverage Anta's brand
operation experience and resources in China in the future, Amer Sports' growth potential in
China and Asia is worth looking forward to. On the other hand, with the policy dividend, the
scale of China's ice and snow industry is expected to reach 1 trillion yuan in 2025, driving the
growth in demand for ski apparel and supplies, which will further benefit Amer Sports' growth.
Overall, the Anta acquisition is complementary for both companies and is very beneficial for
their future growth.
Post mortem
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At one point in November 2019, Anta Sports sold a 5.25% stake in Amer Sports at a
discount to investors including Anta Sports executives and Sequoia Capital, after the transaction
Anta Sports still holds 57.7% of the voting rights in Amer Sports and enjoys a 52.7% economic
interest. The transaction will maintain effective control over the shareholding and optimize the
Group's balance sheet, as Anta has indicated that it intends to use the proceeds as general
working capital. Overall, Anta's cash flow was affected by the use of a large amount of capital
after the acquisition of Amer, but the impact on its own normal operations was manageable.
Accordingly, Anta Sports' investment loss in Amer Sports is $650 million in 2019 and
approximately $720 million in the first half of 2020. Accordingly, Anta Sports' investment loss
in Amer Sports is $650 million in 2019 and approximately $720 million in the first half of 2020.
Anta's investment in Amer Sports does not pay off in the short term, but with Amer Sports'
channel expansion and market recovery, it is expected to turn losses into profits in the future.
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Appendix:
Chart and ratios for valuation part.
Screenshot from Refinitiv Eikon, Thomson Reuters
Other data for relevant valuation.
Screenshot from Refinitiv Eikon, Thomson Reuters
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References:
Yang, Y. (2021). China's Anta Sports posts solid growth in first half of 2021. Retrieved from
https://www.chinadaily.com.cn/a/202108/24/WS6124bec0a310efa1bd66ad6e.html
Lixuan, Luo. (2021). Explain in detail Anta's 36 billion yuan acquisition of Amer Sports
Retrieved from: China Xinhua Publishing House
http://www.sjfzxm.com/global/en/570588.html
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