BREAKINGVIEWS-Skechers makes for a sneaky trade war buyout

By Sebastian Pellejero

NEW YORK, May 5 (Reuters Breakingviews) - Buyout barons are slipping on some comfortable kicks. On Monday morning, sneaker brand Skechers SKX.N agreed to sell to 3G Capital for $9.4 billion — the footwear industry’s largest deal ever. With 85-year-old founder Robert Greenberg staring down tariff-induced supply chain chaos and rising competition, his control of the vote and some careful structuring have eked an opportunity out of the trade war.

It’s a contrast to the general chill on merger activity wrought by President Donald Trump’s sweeping trade levies. The number of private equity-backed deals fell 34% in the first quarter to 596, according to LSEG data, the lowest figure since 2019.

3G’s offer leaves a sterling record for longer-term investors while capitalizing on some short-term pain. The $63-a-share headline deal price represents a 12% annualized return since Skechers went public in June 1999. Insiders, who signed up 60% of the company’s vote to approve the transaction, can bank those gains. However, the terms are a chunky step down from the $78 peak notched by the stock in February. Since then, tariffs have threatened to squeeze shoemakers like Skechers, Nike NKE.N and beyond.

Those who want to hang on can do so, in dramatically restricted form. Shareholders can elect to receive $57 in cash and one unit of the post-deal private company. They cannot trade without 3G’s permission, a tricky proposition for institutional investors. And the buyer is capping this oddball consideration: if more than 20% of shares opt in, the payout will be prorated.

Still, that saves on cash needed upfront. Assume the mixed option hits the 20% maximum and that 3G gets the $5 billion debt package reported by Bloomberg. If revenue continues growing around 7.5% annually, margins hold steady, and after five years the buyout shop exits at the same 8 times trailing EBITDA at which it entered, the rate of return realized on its stake could hit 14%, Breakingviews calculates. That's fine rather than thrilling, but any improvement at all quickly adds upside.

It must manage the trade war in the meantime. Around a third of Skechers’ $9 billion in 2024 sales were from the U.S., and the company plans to try to share costs with vendors, adjust its global supply chain and tweak prices.

Yet its focus on affordable, comfortable sneakers has resonated with an increasingly aging population. In 2050, 80% of people worldwide over the age of 60 will be living in low- and middle-income countries, according to the World Health Organization. Google search activity for the brand has grown 13-fold globally since 2004, versus just seven times in America. In this case, both greying owners and customers are a dealmaking opportunity.

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CONTEXT NEWS

Sneaker maker Skechers said on May 5 that it had agreed to be taken private by 3G Capital for $9.4 billion, marking the footwear industry’s biggest-ever buyout. Stockholders may elect to receive either $63 per share in cash, or $57 plus one unit of unlisted equity in a new privately held company that will result from the transaction, of which 3G expects to hold a roughly 80% stake.

Skechers previously withdrew its annual financial forecasts in April and warned of the fallout from President Donald Trump’s 145% import tariff on Chinese goods.