Key Takeaways
- Varsity Brands is nearing a deal to purchase a soccer-focused apparel company that sells primarily to premier youth clubs, with approximately 70% of sales coming from team orders
- The target company represents roughly 9% of Varsity’s current revenue and 7% of its EBITDA
- Varsity plans to use its nationwide sales force to expand the target’s reach from large premier clubs to smaller clubs across the country
- The deal would add approximately $460 million in new debt, with Moody’s projecting free cash flow exceeding $150 million over the next 12 months
- Moody’s noted that U.S. soccer participation is growing, which should support sales growth for the combined company
Breaking Down the Pending Acquisition
Varsity Brands, the company behind BSN Sports and cheerleading company Varsity Spirit, is close to buying a soccer apparel company that works with competitive youth clubs. The target company, which has not been named publicly, sells uniforms, apparel, and equipment to private club teams rather than school teams.
According to Moody’s, BSN Sports is currently “underpenetrated” in the private club space. The target company focuses on “larger premier youth clubs in the US,” with approximately 70% of its revenue coming from team sales. The company is “primarily focused on soccer-related products but also has a smaller apparel business that caters to other sports,” Moody’s stated.
The target also sells soccer apparel and equipment directly to consumers through its digital offerings, which Moody’s noted “modestly diversifies Varsity’s business outside current school and club focus.”
Varsity’s Expansion Strategy for Club Sports
Moody’s outlined Varsity’s plan for the target business: “We believe that Varsity will be able to expand Target’s offering more broadly to small clubs across the country by leveraging its large sales force and distribution network.”
The rating agency also expects Varsity to improve profit margins at the target company “by contributing its own manufacturing and distribution advantages and by providing access to its licensing partnerships with leading apparel companies.”
S&P added that Varsity could “leverage the Target’s strong presence in club into other sports, providing further diversification.”
On integration risk, S&P noted that “the Target’s existing senior management will remain invested in the business through rolled-over equity, and its sales is managed by a small team of territory managers who are largely tenured in the business.”
Financing Structure and Debt Levels
Varsity plans to fund the deal through multiple sources: a $400 million addition to its existing term loan, $60 million borrowed from its asset-backed lending facility, and $45 million in cash from its balance sheet. The target company’s management would also roll equity into the deal.
Moody’s described the transaction as “credit negative in the near-term because it will increase leverage and interest expense by roughly $28 million.”
However, both rating agencies affirmed Varsity’s existing credit ratings. Moody’s projects debt-to-EBITDA leverage would decline to slightly below 6.0x over the next 12-18 months, down from 6.6x pro forma for the deal. The agency expects free cash flow to exceed $150 million over the next 12 months, up from $70-80 million in 2025, which included a sizable litigation settlement payment.
S&P expects Varsity to “gradually reduce leverage to the low-6x area by the end of 2026 and below 6x by the end of 2027.”
Core Business Performance and Growth Outlook
Both rating agencies project continued growth in Varsity’s existing operations. Moody’s expects BSN Sports and Varsity Spirit to “generate mid-to-high single digit revenue growth over the next 12 to 18 months because the company continues to expand distribution into new schools and organizations and shift its product mix towards higher margin products and cheer events.”
S&P estimated that Varsity’s revenue and EBITDA grew approximately 8% and 10% respectively in 2025, “with support from continued growth at BSN” driven by “strong sports participation trends, growth in higher-margin private label and licensing businesses, and strong technological and supply chain capabilities.”
Tariffs on imported goods affected Varsity’s margins in 2025. Moody’s noted that “tariffs on imported raw materials and goods have increased costs and negatively affected margins in 2025,” but anticipates that “revenue growth and realized efficiencies from supply chain investments and new pricing actions in 2026 will improve the EBITDA margin.”
Acquisition Activity and Forward Outlook
According to S&P, Varsity spent approximately $90 million on acquisitions in 2025, including “bolt-on acquisitions of smaller sports equipment and apparel dealers and businesses that supply dance studios.” S&P anticipates “acquisition spending will remain at similar levels in 2026, in addition to the acquisition of the Target.”
S&P’s base case assumes Varsity “will not pursue large, debt-funded transactions of the Target’s scale over our forecast period and that any acquisitions will be funded with” free operating cash flow.
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