Underwear maker Hanesbrands Inc said it would buy former sister company DBApparel, bringing back together two global lingerie brands and giving Hanesbrands increased access to Europe.
Hopes of fast growth in the region, where DBApparel has a large market share, pushed Hanesbrands shares up 9 percent to their life-high on Wednesday.
The deal, which values DBApparel at 400 million euros ($545 million) on an enterprise basis, will bring together the Wonderbra and Playtex brands.
DBApparel sells these brands in Europe. Hanesbrands holds the rights for the two lingerie brands elsewhere and has other clothing brands, such as Hanes and Champion.
"Many European markets are highly fragmented in intimate apparel and underwear, and the local competitors simply do not have the capabilities or resources to compete from an innovation standpoint with an innovation leader like HBI," ISI Group analyst Omar Saad wrote in a note.
Hanesbrands said the deal is expected to boost its adjusted operating profit by 21 percent and add more than $875 million in annual net sales within three or four years of closing.
Hanesbrands and DBApparel were both owned by Sara Lee Corp until 2006, when private equity firm Sun Capital Partner Inc bought Paris-based DBApparel.
DBApparel is Hanesbrands' second major purchase in a year. It bought rival Maidenform Brands last July for $547 million to expand its range of lingerie for younger consumers.
C.L. King & Associates Steven Marotta said he expects Hanesbrands to make more deals in the next 2-3 years.
"The company is throwing a lot of cash. Their last acquisition of Maidenform was very successful ... sure they will be looking elsewhere," he said.
Analysts had expected Hanesbrands to make acquisitions in the second half of this year, given its strong cash flow. It had cash and cash equivalents of $151.1 million as of March 29.
Hanesbrands said it would use cash on hand and third-party borrowings to fund the DBApparel deal, which also requires consultation with European and French works councils representing its employees.
The deal, which values DBApparel at about 7.5 times EBITDA, is expected by Hanesbrands to close in the third quarter.
DBApparel outsources about 75 percent of its production, while Hanesbrands owns factories around the world.
DBApparel's other brands include the DIM line of innerwear, which it sells primarily in Western and Central Europe. Sales of DIM accounts for about half of the company's total sales.
The company gets about 45 percent of its sales from France, about 15 percent from Germany/Austria, and 20 percent from Italy, Spain and Portugal combined.
Hanesbrands got only about 11 percent of its $4.63 billion revenue from outside the United States last year.
J.P. Morgan Securities LLC is the financial adviser to Hanesbrands on the deal.
Hanesbrands' shares were trading at $95.80, up 8.4 percent, at midday. The stock has risen 66 percent since the company's purchase of Maidenform.
(Reporting by Sruthi Ramakrishnan and Lehar Maan in Bangalore; Editing by Saumyadeb Chakrabarty)