Philly fund buys Eastern Mountain Sports

Versa Capital Management LLC, the Ira Lubert-backed, Philadelphia-based, $1.2 billion troubled-companies turnaround firm whose investors include Pennsylvania state pension funds, won't say how much it paid to buy Eastern Mountain Sports (EMS), a mall-store chain that sells outdoor equipment in 12 states.

EMS, based in Peterborough, N.H., where its founders started a rock-climbing school 42 years ago, now operates 69 stores, down from at least 85 in the mid-2000s. The company reported revenues above $200 million in 2007, but a planned expansion was put on hold in the recession. Versa principal Mark Walsh will serve as EMS's Chairman. He also chairs the Bob's Stores clothing chain, another Versa property.

In a statement, Versa boss Gregory L. Segall called EMS "a natural fit" for Bob's and other Versa properties: "With a new capital structure and the other resources that Versa can offer, EMS will have many new opportunities to develop its branded products and better serve its customers.”

Mark Walsh, a Versa principal who also chairs Bob's, added there won't be big changes at EMS stores or its online service until after Christmas, and raised the possibility at least some EMS and Bob's operations will be combined: "Plans call for exploring opportunities for Bob’s Stores and EMS to collaborate, and for maintaining all of the current EMS stores."

EMS chief executive Will Manzer, who will keep his job initially, added that the Versa purchase "strengthens our future." Duff & Phelps Corp. advised EMS in its sale. Philadelphia's Dechert LLP advised buyer Versa. EMS was founded in Massachusetts in 1967; like other mall retailers it has expanded online sales in the face of increasing competition. 

The Versa deal is the latest step in a long chain of corporate ownership. Manzer, backed by financing from J.H. Whitney & Co., bought control of EMS from former owner American  Retail Group of Atlanta back in 2004. Previous owners had included movie studio Warner Communications Inc. and the Franklin Mint, the collectibles retailer formerly based near Media.

EMS "has passionate store associates, a rarity in retail, which makes it fun to shop at their stores," Fiona Dias, chief strategy officer at ShopRunner, a Conshohocken-based online shopping service that counts EMS among its participants, told me.

"They are one of the few retailers who have wisely invested in closely linking their website and stores, making it easy to buy online and pick up in stores -- and probably buy something else while you’re in their stores." She said Versa's investment could help EMS expand its online sals profile outside the Northeast.

What was EMS worth? "Non-distressed retailers tend to sell for about one year's revenues," says Philadelphia investment banker Andrew Greenberg, after reviewing data for the sales of 48 retailers with under $250 million in sales, an average cash-flow margin of 16 percent, and 6.5 times earnings (before interest, taxes, depreciation/amortization), compiled by a deal data firm he co-owns, GF Data Resources.

"But it's a brutal environment for these mid-sized retailers," Greenberg added. Given "the distressed focus of Versa, my guess would be that the business traded at a significant discount to non-distressed assets."