The Real Reason We Believe Utah-based Backcountry.com has Traded Hands Once Again

Merryville, Indiana-based CSC Generation Enterprise has acquired Park City, Utah-based Backcountry.com, including its brands MotoSport, Competitive Cyclist, and Steep and Cheap.

It appears, however, that the majority owner of Backcountry at the time of the acquisition earlier this month was San Francisco, California-based private equity firm, TSG Consumer Partners.

Terms of the acquisition were not disclosed.

{AUTHOR'S NOTE: Normally, not knowing the financial side of an M&A transaction would mean that we at Utah Money Watch would not report much more on such a deal than what has been written above.

{In this case, however, we have some insights into Backcountry.com that we suspected most publishers may not have had, so we felt it was worth doing a bit more digging.

{And so, here's the rest of the story into why we believe CSC Generation Enterprise purchased Backcountry earlier this month.}

Backcountry.com: From Then Until Now

As the majority of Utahns probably know, Backcountry.com was launched in the mid-1990s (1996 to be exact) in an effort to take advantage of the growing sophistication of the World Wide Web to create an online retailer specializing in brands for outdoor and recreational enthusiasts.

And it worked.

Within a decade Backcountry had been named by Internet Retailer as 1 of its 50 Best Retail Sites ... on three separate occasions!

Outdoor Business had also named Backcountry 1 of the top 25 retailers in the United States.

And the firm had been named to the Inc. 500 list of fastest-growing private companies in both 2003 and 2006

So when Liberty Media announced on 07 May 2007 that it had acquired controlling interest of Backcountry.com, it was not totally surprising that a larger media company had recognized the value of Backcountry.

{And yes, I consider Backcountry.com to be a media company, as well as an eTailer, but that's a story for another day.}

By then Backcountry had expanded to include five additional online eCommerce outdoor/recreational brands, specifically

• BackcountryOutlet.com,
• DogFunk.com,
• SteepandCheap.com,
• TramDock.com, and
• WhiskeyMilitia.com.

Officially, neither Liberty or Backcountry announced at the time what percentage of the firm had been sold or for how much.

But because Liberty was a publicly traded company in 2007 and, apparently, the transaction was judged to be "Material" by its legal team, the details were disclosed in Liberty's 2007 Annual Report.

Specifically,

• Liberty paid $120 million (in cash) for
• An 81.3% majority ownership position in Backcountry,
• Pegging Backcountry's valuation (in 2007) at ~$147.6 million.

Liberty held onto its stake in Backcountry until July 2015 when it sold it off to San Francisco, California-based private equity firm, TSG Consumer Partners.

As with the prior purchase, TSG did not disclose the price it paid to acquire Backcountry, in part (I suppose) because TSG was/is not a publicly traded company.

Something TSG did disclose, however, was that Backcountry Co-Founder, Jim Holland, maintained a stake in Backcountry even with the TSG purchase, suggesting that this had occurred with the Liberty acquisition as well.

Fast forward nine-plus years to earlier this month and the ownership of Backcountry has changed again.

Why Buy Backcountry.com?

In the announcement about its purchase of Backcountry.com, the CSC Generation Enterprise release says

"This strategic acquisition strengthens CSC's position in the retail industry, expanding its portfolio to over ten brands. Backcountry's diverse product offerings and loyal customer base align perfectly with CSC's dedication to delivering curated experiences that better meet customer expectations."

CSC's Founder/CEO, Justin Yoshimura, goes on to name the "... remarkable passion and loyalty of (Backcountry's) customers ..." as one of the primary reasons his firm was drawn to Backcountry and CSC's intent to "... deliver curated experiences that better meet customer expectations."

So, what's actually going on here?

I believe it's two things:

ONE: CSC clearly believes it can produce greater value with/from Backcountry than what its previous owner was achieving.

This is the approach most private equity firms take, specifically they feel they can ...

• Buy an asset for less than they believe it's worth,
• Inculcate that asset with a more efficient and effective approach to business, and (if possible),
• Look for synergies between the newly acquired firm with the existing PortCo's (portfolio companies), before
• Selling off the asset in 3—7 years at a significant multiple above what we paid for the firm in the first place.

Lest anyone mistakenly believe CSC is buying Backcountry simply for its customers and/or technologies so it can exit the market for outdoor/recreational goods altogether, I'm pretty confident that is not the case at all, especially since his LinkedIn Profile suggests that Backcountry Co-Founder, Holland, still retains an ownership stake in Backcountry.

That said, I believe the Number TWO Reason why CSC bought Backcountry is found in the quote from CSC's Yoshimura.

Specifically, I suspect Yoshimura believes CSC can leverage its AI-enabled technologies to unlock the "... remarkable passion and loyalty of (Backcountry's) customers ..." into Large Learning Models (LLMs) it can deploy across CSC's existing brands to

• Increase revenue and profits per customer,
• Thus increasing the Lifetime Value (LTV) per customer, while also
• Lowering overall Customer Acquisition Costs (CAC).

When I dug into Yoshimura's background and the VC-powered backstory of the now nine-year-old CSC, one thing that became clear is that CSC Generation Enterprise is not a traditional PE firm, not by a long shot.

In other words, I'm pretty confident the foundation of this acquisition is actually driven by data and Yoshimura's belief CSC can drive more value from all of its PortCo's because of the insights it will be able to extract from Backcountry.com.

And if I'm right, you now know "the rest of the story" behind the latest purchase of Backcountry.com.

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Thx. DLP