Catching the latest wave of consolidation in Southern California's surf wear industry, apparel giant VF Corp. said Monday that it planned to buy San Diego sandal maker Reef Holdings Corp.
As apparel and shoe companies rooted in surfing and skateboarding have thrived in recent years, the clannish surf wear industry increasingly has been targeted by larger outsiders seeking to cash in on young shoppers' fascination with Southland brands. Among them: Hurley, Vans and Ocean Pacific.
Athletic shoe behemoth Nike Inc. made the first strike three years ago when it swooped in to buy Hurley International. Since then, Miami-based Perry Ellis International Inc. has snapped up Redsand Apparel, New York-based VF bought Vans Inc. and Warnaco Group Inc., also in New York, acquired Ocean Pacific Apparel Corp.
Insiders, meanwhile, have been beefing up their own holdings. Quiksilver Inc. bought DC Shoes last year and today is expected to announce that it plans to buy Skis Rossignol, a widely anticipated deal that would marry the largest surf wear maker to the world's best-known ski company.
"The surf's still up in the surf wear industry," said Marshal Cohen, chief industry analyst with NPD Group.
"Everybody's trying to acquire lifestyle brands. Certainly the surf industry's proven itself a worthy target for acquisition, and a fruitful one. Surf doesn't go away, and it's not going to go away."
Potential buyers aren't likely to back off either, industry insiders say, because established companies often can grow more quickly by buying a hot brand than by trying to launch a new line.
"There are multiple companies being looked at," said Timothy Harmon, president of Pacific Sunwear of California Inc. in Anaheim, which sells surf and skate brands in its 828 PacSun stores and outlets nationwide. "These big acquisition corporations have been visiting Orange County now for more than two years."
VF, based in Greensboro, N.C., said it would acquire all of Reef's outstanding stock from an investor group led by majority shareholder Swander Pace Capital.
Financial terms weren't disclosed.
Privately held Reef had sales of $75 million last year, excluding royalties, and has experienced "high double-digit" sales growth over the last three years, the company said.
Reef does not disclose its profit.
VF's sales were just over $6 billion last year. Reef will become part of VF's Outdoor division, which had sales of more than $1 billion in 2004. VF shares closed at $58.05 on Monday, down 60 cents, on the New York Stock Exchange.
Under new ownership, Reef will expand its apparel line, which currently represents less than 10% of its business, VF spokeswoman Cindy Knoebel said. Reef will continue to operate in San Diego under current management, she said.
The deal, which is expected to be completed by the end of next month, also will help Reef expand globally, said Dick Baker, Ocean Pacific's chief executive.
Reef is sort of the Prada of flip-flops, Baker said. "It's a very, very cool brand that really doesn't need any strategic repair work," he said.
The company was founded in 1984 by brothers and Argentine immigrants Fernando and Santiago Aguerre, who repaired surfboards in their father's garage in their early teens and later promoted surf contests in their home country even after a military dictatorship banned the sport in 1977, Fernando Aguerre said.
After moving to Southern California in the early 1980s, the pair launched the business with $4,000, mainly as a way to hang out together and keep surfing, said Fernando Aguerre, whose business card reads "chairman and dreamer."
Like most leaders in the industry, Aguerre said the brothers' goal was to "avoid the things most people did for work." "Of course we didn't have a plan or an idea of how it was going to be."
The Aguerres sold controlling interest in their business two years ago to Swander Pace, a San Francisco investment firm, for an undisclosed amount. The brothers celebrated Reef's latest step Monday by -- what else? -- going surfing in Argentina, where the family was on Easter holiday.
Swander Pace could not be reached for comment, but Mark Price, Reef's vice president of global marketing, said the investors were looking for a return on their investment so they began shopping the company around. Reef needed additional capital and resources -- such as those offered by VF -- to continue to grow, he said.
VF's stable of companies includes outdoor labels such as North Face and JanSport and jeans brands Wrangler and Lee.
"We had a tremendous amount of interest," Price said. "We felt VF had the best combination of assets to bring to the table."
Pacific Sunwear started selling Reef sandals about 15 years ago when it was all about rubber flip-flops for guys, Harmon said. Reef now also makes closed-toed shoes, footwear for females and apparel. Its leather sandals now sell for as much as $39 at PacSun.
