Vancouver-based fitness company Nautilus has signed a purchase option agreement to acquire the assets of its largest contract manufacturer, Xiamen, China-based Land America Health and Fitness Co.
The purchase option through June 30, 2007, gives Nautilus time to complete necessary due diligence and enter into definitive agreements, while extending procurement cost reductions through 2007. The agreement also includes rebates for the period of Jan. 1, 2006 to June 30, 2007, which will continue through Dec. 31, 2007, upon exercise of the purchase option.
Consideration for the acquisition is approximately $72 million in cash and stock with an anticipated closing date of Dec. 31, 2007. The acquisition is expected to improve company gross margins by 1.5-2.0 percentage points in 2008.
"The prospect of acquiring Land America is a significant step toward our goal of achieving 11 percent to 14 percent operating margins in the next three years, and positioning our company for long-term competitiveness in the global fitness industry," said Nautilus Chairman and CEO Gregg Hammann, in a statement.
Three-fourths of Nautilus’s equipment is manufactured in Asia.
Land America has manufactured the Bowflex® home exercise gyms for more than eight years and began manufacturing Bowflex® TreadClimber® cardio trainers for the company last year. The purchase option of Land America involves four modern buildings with approximately 700,000 square feet of manufacturing floor space on a 15-acre site in an economic development zone near Xiamen, China, as well as a trading company, Treuriver Investments Ltd. Land America was honored by Nautilus last spring as its supplier of the year.
Hammann said the company will continue to work with its other contract manufacturing partners in Asia and its two domestic manufacturing plants to drive growth and improve margins.
