Just because UA’s 43x EBITDA multiple suggests it CAN buy Lululemon at 15x, does not mean it SHOULD. If it does, we think it will make UA a tremendous short. But we won’t ever make that call, because the likelihood of UA buying LULU is about as high as Nike buying Uber.
- UA wants to beat LULU organically. Not just beat it, but kick it once it’s down, and dance over its grave.
- UA would have to pay $7-8bn for the ‘privilege’ of owning one of the worst-managed brands in retail. That might be ok if UA had experience fixing things. But it doesn’t. Plus, why acquire a company it can beat organically with less than 1/10th the capital allocation.
- The last, and most important factor is Culture. You simply cannot find two more polar opposite cultures (let us know if you can think of any). LULU is a company based on a tree-hugger yogi mentality with little concern for planning, analysis, and close to no sense of urgency. UnderArmour is filled with amazingly energetic, Type-A high-performance athletes camouflaged in business casual clothes. Imagine JJ Watt (DE Houston Texans) in full gear doing ‘warrior pose’ in a peaceful yoga studio…with Nancy Pelosi. That’s about how awkward the cultural matchup here would be.
This would be the modern-day equivalent of when Adidas bought Reebok back in 2006. That handed Nike 10 points of share in Footwear. Rest assured that Nike execs are praying that UA buys LULU. That’s why it won’t happen.
Editor’s Note: This is a brief, abridged excerpt from a more detailed research note sent to subscribers by Retail analyst Brian McGough. To read the entire note and learn more about subscribing to our Retail sector research, ping firstname.lastname@example.org.