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Marucci Sports (US) Looks to International Growth

17 Mar 2020 - Kurt Ainsworth remembers running a baseball batting cage business that gave youth lessons during the day, then moonlighting to help build baseball bat maker Marucci Bat Co. in its early years.

“We learned a lot of things about that industry,” Ainsworth said of his experience with Big Leagues of Baton Rouge. He's applied that knowledge to Marucci Sports LLC, which in 2009 acquired the bat-making company he helped co-found and was launched in 2004 in a backyard shed by LSU Athletic Trainer Jack Marucci.

Over the years, Marucci Sports expanded beyond wood bats to metal bats; sports apparel and accessories; batting and field gloves; bags; and protective gear. And true to Ainsworth's past, Marucci also operates several retail clubhouses with batting cages, and has been growing it as a franchise operation across the country.

In the coming weeks, Marucci Sports is slated to be sold for $200 million to Connecticut-based publicly traded investment company Compass Diversified Holdings. Its operations are similar to private equity companies, buying businesses for its portfolio. Only 95% of Marucci Sports' equity is being sold; the remainder is carved out for existing shareholders and includes management of the company.

In addition to Ainsworth, Marucci Sports LLC was founded in 2009 by former professional baseball player Joe Lawrence, also a co-founder of the bat company, and a former assistant White House press secretary, Reed Dickens.

Ainsworth, a former Major League Baseball pitcher who played for the San Francisco Giants and Baltimore Orioles after graduating from LSU, said much of the company's success has been its closeness to the sports.

"Everybody who works in our office, we all have ties to baseball and softball," he said. "Either we played; we coached; our kids play; or we go to games. We are very in tune into what's going on."

Ainsworth, serving as CEO since 2014, and the existing management team are expected to remain in their respective roles after the Compass deal closes.

Marucci has 230 employees, about 175 of whom work in Baton Rouge.

It has a growing network of clubhouse locations in Baton Rouge, Lafayette, Covington and planned in New Orleans. Its franchises are in Austin, Texas; Orlando, Florida; Ozark, Missouri; and planned in Las Vegas.

The clubhouses include a retail storefront for Marucci products, and batting cages where customers can test products. The clubhouses, which have 24-hour hour access for members to practice baseball and softball, were included in the Compass deal. The company sells its products directly to consumers, wholesale to independent and retail chains and direct to baseball and softball teams.

Marucci has grown to about $15 million in annual adjusted earnings in 2019, before interest, taxes, depreciation and amortization — a common business metric.

Along the way, Marucci Sports did get some help from a state program. In exchange for $600,000 of research and development expenses in 2009 and 2010, Marucci got $171,435 in tax credits. The company doesn't have any active performance contract obligations with the Louisiana Economic Development department through its economic incentive programs.

For now, it’s largely business as usual, and the focus is on growth nationwide and internationally, Ainsworth said.

“We see opportunities internationally to grow. There is a huge runway,” he said.

Compass sees Marucci as a “premium brand” for its portfolio. Its new owner doesn’t expect to flip Marucci as long as it keeps growing. Compass operates with a private equity philosophy, but has its own independent capital rather than relying on big debts to make acquisitions.

"We hope that this business will be much larger … that we can own it for a long time," said Ryan Faulkingham, chief financial officer of Compass.

That would mean longer than a five-year time frame, and upward of 15 years if necessary.

"What we'll do upon close is assess strategies. We think that they have substantial organic growth opportunities, so we will invest in that," Faulkingham said. "To the extent that we can find additional acquisitions that fit their culture, we'll look to do that."

Marucci manufactures all of its wood bats in the U.S. and operates two wood mills in Pennsylvania. About 95% of its wood bats are made of maple trees, which are hard enough for baseballs but lightweight enough for players to swing. The remainder are made from Ash trees.

“We’ve been growing at a pretty good clip the past several years,” Ainsworth said. “We had been getting a lot of interest from both strategic and private equity firms. This (sale) is a return of investment to our current shareholders.”

There are no plans to outsource the custom wood bat operation, but the company does tap factories overseas for more of its apparel and gloves. It has plans to roll out even more products and is looking to reshore some of its other manufacturing to the U.S. as facilities are available.

“They don’t want a race to the bottom but want us to keep our products high quality,” Ainsworth said.

Nor does the company plan to move its headquarters. “We’re staying in Baton Rouge,” he said.

Professional baseball players may use several bats each during the season, often as a training tool, so there is steady seasonal demand for wood bats.

In 2017, Marucci acquired Pennsylvania-based custom wood bat competitor Victus Sports for an undisclosed price. Marucci and Victus promote themselves as the top two most-used bats among big-league players. In 2018, Marucci acquired Carpenter Trade LLC, a custom-fit synthetic glove design business.

Other portfolio businesses held by Compass have grown under its guidance, such as Fox Racing Shox, a manufacturer of high-performance snowmobiles and mountain bikes that went public. Compass acquired Fox Racing in 2008 for $85 million then filed for a $120 million initial public stock offering in 2013.

Ergobaby Carrier, a soft infant carrier product business, was acquired by Compass in 2010 for $91 million. Since then, Ergobaby has acquired related businesses as it has grown and remains in the Compass portfolio.

Not all of its portfolio companies are held for long periods of time. Compass acquired Aeroglide, an industrial drying and cooling equipment manufacturer, in 2007 for $57 million and sold it one year later to Buhler Holding AG for $95 million.

Ainsworth said he hasn't been able to take much time for reflection on what the Compass deal means for the company since it's already working on a strategic plan to keep growing, but the sale was significant for a local business which has grown from a shed to manufacturing plant. The company was even recognized by President Donald Trump during a Made in America showcase in Washington, D.C., in 2017.

"We’ve been blessed along the way. The stars have aligned for us and we have a great team," Ainsworth said.

The Advocate