Recently, TowerBrook Capital Partners announced that it would acquire True Religion Apparel, Inc. (NASDAQ:TRLG) for around $32 per share in cash, with a total transaction value of $835 million. The purchase price was 52% premium to its trading price on October 9, a day before True Religion Apparel, Inc. (NASDAQ:TRLG) announced that it put itself up on sale. Since the beginning of the year, the company has experienced a 24.7% rise on the market. Is a $32-per-share price tag fair for True Religion?
True Religion Apparel, Inc. (NASDAQ:TRLG) is the owner of True Religion Brand Jeans, offering premium fashion apparel to consumers around the world. The company operates in four main business segments: U.S. Consumer Direct, U.S. Wholesale, International, and Core Services. The majority of its sales, $281.6 million, or 60% of the total 2012 revenue, were generated from the U.S. Consumer Direct. The U.S. Wholesale ranked second with $99.2 million in sales, while the International segment contributed $83.8 million in 2012 revenue. The U.S. Consumer Direct and U.S. Wholesale segments were also the two biggest income contributors, with $93.7 million and $44.3 million in profits, respectively.
Since 2008, True Religion Apparel, Inc. (NASDAQ:TRLG) has managed to consistently increase its top line. Revenue increased from $270 million in 2008 to $467 million in 2012, while net income stayed nearly flat, from $44 million to $46 million during the same period. In 2012, it generated $64 million in operating cash flow and $42 million in free cash flow. At $32 per share, True Religion is valued at nearly 7.23 times EV/EBITDA.
A fair price or not?
TowerBrook seems to get True Religion Apparel, Inc. (NASDAQ:TRLG) at quite a good price, as the valuation is the lowest compared to True Religion’s bigger peers, including Columbia Sportswear Company (NASDAQ:COLM) and VF Corp (NYSE:VFC), Columbia Sportswear is trading at $60 per share, with a total market cap of nearly $2.1 billion. The market values Columbia Sportswear at a higher valuation, 9.4 times EV/EBITDA. Columbia Sportswear Company (NASDAQ:COLM) has history dated back to 1938, providing high quality apparel and accessories for outdoor activities. In the first quarter of 2013, Columbia Sportswear Company (NASDAQ:COLM) has beaten analysts’ expectations in both revenue and net income. Its revenue increased by more than 4.5% to more than $348 million, while EPS came in at $0.29 per share, much better than the EPS of $0.11 in the same period last year.
Looking forward, Columbia Sportswear expected the slight decrease in net sales, with the operating margin staying around 6.6%, including the impact of restructuring charges and pre-operating costs of the China joint venture. What I like about Columbia Sportswear is its consistently increasing dividend payment. Since 2008, its dividend has been raised from $0.64 per share to $0.88 per share. At the current trading price, the dividend yield stays at 1.5%.