Vera Bradley, Inc.'s (VRA) announcement on Thursday that it was acquiring 75% of Creative Genius, better known as Pura Vida Bracelets answered one open question that I've had for quite some time, and initially raised one other. It confirmed for me that the company is not for sale, at least not yet anyway, and that VRA is all in on revitalizing their brand, which has floundered for years. While the company has continued to be profitable, revenue and earnings have been in decline.
The initial question the deal raised for me was who the heck is Pura Vida? It sounded somewhat familiar, but I could not connect the dots, until I saw our middle child; I asked her if she knew of Pura Vida, and she proceeded to hold out her hand, adorned by both a Pura Vida ring and bracelet. Apparently, Pura Vida products are quite a hit with the twenty-somethings, and beyond
VRA is paying $75 million for it's 75% interest in the company, and it has the option to acquire the remaining 25% five years after the deal closes. VRA is closing the deal with cash and investments; the company has carried a lot if liquidity on its balance sheet in recent years, ending last quarter with $144 million, or $4.22 in cash in investments. That will leave it with some dry powder on the books, but probably lessen the chance of significant buybacks, or the initiation of a dividend.
Pura Vida generated $68.3 million in revenue for 2018, EBITDA of $13.7 million and net income of $3.8 million, which tells us that VRA is paying just under 1.5X revenue, 7.3 X EBITDA (earnings before interest, taxes, depreciation and amortization), and 26 X earnings for its stake in the company. Pura Vida is not bringing any debt along with it, which is a positive, and VRA expects the deal to be accretive to earnings this year.
The market's reaction was just mildly positive; VRA shares closed Thursday up just over 3%, but it was generally a positive day for markets overall.
VRA while still a well-known brand, but not exactly a well-known or well-followed stock these days, will have to prove that this deal is worthwhile. I've been in the mindset since taking a position in VRA that they'd be acquired at some point, but did not give a great deal of credence to the idea that they'd instead be the acquirer, trying to live another day. I do like what I hear about the acquisition of Pura Vida, so far anyway, and time will tell whether the brand has legs, or is just another fad.