Under Armour details IPO

Local sports apparel maker expects $72.7 million from offering


Under Armour Inc., the Baltimore sports apparel maker, expects to net $72.7 million from an initial public stock offering and use the money to pay off debt and reward longtime employees and investors, according to regulatory documents filed yesterday.

The company, in an updated filing with the Securities and Exchange Commission, said it plans to sell about 12 million shares at $7.50 to $9.50 per share. No date has been set for the offering.

The company plans to use $12 million of the proceeds to cash out a major investor, Rosewood Capital, and a combined $48.1 million to repay debt.

If successful, the offering will make Under Armour founder Kevin A. Plank a multimillionaire and lay the foundation for its expansion in the highly fragmented and competitive athletic-wear industry.

"This seems to have all the earmarks of a deal that's going to do well," said David Menlow, president of IPOfinancial.com.

The offering is coming at a time when retailers are worried that consumers will cut spending in the face of higher fuel expenses and rising interest rates.

But analysts said Under Armour seems to have captured a niche in the apparel industry with high-powered athlete endorsements and a hip slogan, "Protect This House."

Yesterday's filing suggests Plank will be doing that somewhat literally.

Despite the fact that he is selling 1 million of his 16.2 million shares in the offering, Plank will retain 32.8 percent of the company's outstanding stock, including all of its Class B shares, which are worth 10 votes each. That will give him 83 percent of the voting power and, essentially, total control over the company's decisions.

IPO experts said the concentration of voting power doesn't concern them.

Domestic entrepreneur Martha Stewart did something similar when she took her brand public.

Numerous other entrepreneurs have structured IPOs in similar fashion over the years.

"Those companies are saying, `You're not going to change our culture. This is what we do,'" Menlow said.

"People who are buyers of IPOs have to realize they have a say [in the company], but it's like being in the middle of a forest with no one around to hear."

However, analysts did express some concern about the number of shares being offered by Plank and other company insiders as part of the deal.

Of the total being offered, slightly more than 2.5 million will be sold by insiders, who will keep the proceeds for themselves. Investors prefer to see insiders hanging on to their stock as a show of confidence in the company's prospects.

"That'll be an issue for us," said Kathy Smith, an analyst with Renaissance Capital, the Greenwich, Conn., IPO tracking firm. "We'd like to see that they [company insiders] feel there's a lot of upside to the stock."

Menlow, the IPO analyst, said, "It's a little disappointing when you see that as part of an IPO. Anytime you have selling shareholders as part of the offering, the question is: Is this IPO about creating a public vehicle for the insiders to use as an exit strategy?"

But Under Armour is helped by its strong track record, the analysts said. The company is profitable and still growing.

Sales grew from $5.3 million in 2000 to $263.4 million in the 12 months that ended Sept. 30. For the first nine months of 2005, net income grew to $10.9 million from $8.7 million in the corresponding period last year.

Gone are the days when companies with little or no profits could attract investors with promises of future gains.

"This [profitability] is almost a prerequisite for today's IPO market," Menlow said.

Other niche apparel makers have done well with recent IPOs. Smith pointed to Volcom Inc. The Costa Mesa, Calif., company is a branded maker of surf-wear that launched its IPO in June and has seen its stock gain 69 percent.


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