British sporting goods firm JD Sports has closed on its $558 million acquisition of U.S. sportswear retailer Finish Line.
According to Marc Cooper, chief executive officer of PJ Solomon, the investment banking firm that represented , the two have had a long-standing relationship and it was JD Sports that had first reached out to the U.S. retailer after considering different ways to enter the U.S. marketplace.
Cooper said the deal makes sense for both Finish Line shareholders and for the future of the company.
The investment banker said it was a good time for the company to sell since it was “steadily declining in earnings and in share price.” He noted that as brands such as Nike shrinks its account base to “fewer and better wholesale customers, it became harder to be the smaller number-two player in the U.S. market.”
The lack of scale for Finish Line, as well as other brands having their own competing online businesses and deals with other retailers, meant that Finish Line’s business would likely deteriorate. Further, those brands are also looking for smaller and larger partners to be their retail engines globally, Cooper noted.
From a company perspective, the addition of JD’s global heft and size will help drive many components of Finish Line’s business, whether it be product distribution or extent of offerings, the banker said, adding that those factors will also help drive margins for the U.S. retailer.
“For JD Sports, this was a brilliant move. It gives them an immediate and significant footprint in a very large U.S. market,” Cooper said. Finish Line currently operates 600 stores in the U.S. The banker said JD Sports plans to invest heavily in the retailer, “spending considerable amounts upgrading stores not already upgraded” and maybe even open a few stores as well.
As for the overall retail landscape, Cooper expects that there will be more acquisitions similar to the deal between JD Sports and Finish Line: “This is what ails U.S. retail. [Retailers who not vertical] are getting disenfranchised by their brands who are going online, and they are getting disenfranchised by the Amazons of the world who are getting better allocations of good product.”