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Thursday, June 24, 2021

Fanatics Makes Bold Acquisition

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Michael Rubin got his start in business at a young age. He opened a ski shop before the age of 15 and grew it to five locations by the time he entered college. While in college he purchased $200,000 in overstock equipment for $17,000 and sold it for $75,000. He went on to sell his e-commerce company GSI Commerce to eBay (NASDAQ:EBAY) for $2.4 billion by the age of 38.

Rubin struck a deal with eBay (NASDAQ:EBAY) to buy back three consumer businesses–Fanatics, Rue La La and Shop Runner, and merged the three companies into a new entity named Kynetic.

Rubin has grown Fanatics into a powerhouse, striking partnership deals with more than 300 professional leagues, sports and teams. Fanatics operates the e-commerce websites of virtually every major professional sports league.

Just last month, Fanatics raised $350 million in a Series E funding round that saw its valuation jump to $6.2 billion from $4.5 billion in 2017. The round was supposed to be for $250 million, but was reportedly oversubscribed due to Fanatics’ 30% jump in e-commerce sales so far this year. Revenue was up slightly through the first six months of this year following last year’s $2.5 billion in sales.

At the time of the deal, Fanatics said the funds would be used to accelerate their rights acquisition strategy and pursue mergers and acquisitions.

Fanatics didn’t waste much time putting the funds to work, as earlier this week the company acquired Top of the World, the largest maker of college sports caps, in a deal that was reportedly for between $25 and $50 million. About 600 schools have agreed to transfer licensing rights held by Top of the World to Fanatics.

The interesting part of the deal is Fanatics and Rubin appear to be following his playbook of buying assets at distressed prices. Top of the World was undergoing liquidation proceedings at the time of the deal as the company’s sales took a hit from the coronavirus.

As a result of the deal, about 200 Top of the World factory workers that had been laid off in August were rehired. Rubin even personally flew to Norman, Oklahoma last week to welcome them to Fanatics. Fanatics purchased all of the inventory ordered by Top of the World, such as blank hats, from overseas manufacturers and will have the Norman employees embroider them.

With a fresh round of funding and its business seemingly holding up well during the coronavirus, an IPO for Fanatics may not be too far away.

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