KMD Brands has entered an exclusivity agreement with US-based consumer brand group Bluestar Alliance, which is weighing a possible acquisition of all shares in the Kathmandu and Rip Curl owner.
The agreement allows Bluestar Alliance, whose portfolio includes Dickies and Scotch & Soda, to carry out confirmatory due diligence on KMD Brands and continue discussions about a potential transaction.
Exclusivity can be extended if specified conditions are met, with a long stop date of December 23.
The development follows KMD Brands’ FY26 results, when the company revealed it had received a number of indicative approaches from external parties during its business review. The board then determined that further engagement with a limited number of those parties was appropriate.
KMD Brands noted there is no certainty the process will result in a binding proposal, or that any transaction will ultimately go ahead.
The board also stressed that it has not made a recommendation on any transaction, and that granting exclusivity should not be read as one.
This agreement comes amid a challenging year for KMD, which included a rightsizing of its balance sheet through a NZ$65.3 million equity raise at a steep discount, alongside a refinanced multi-year debt facility of approximately NZ$205 million.
The capital raise followed a trading halt in March, when KMD delayed its half-year results while it finalised the raise. At the time, group net debt had reached NZ$94 million, above the company’s own expectation of NZ$85 million to NZ$90 million.
Days before the halt, KMD rejected a proposal from US surfwear company Stokehouse Unlimited, which manages Vissla and Sisstr, to demerge Rip Curl into a separately listed company and merge it with the US business. Then-chairman David Kirk said the concept created no value for shareholders, and that combining multiple surf brands that compete directly with each other was not a proven strategy. Kirk later signalled his intention to step down as chairman after 13 years on the board.
In May, the board, under chair Philip Bowman, launched a comprehensive business review to assess the group’s capital structure, portfolio configuration and other value-creation opportunities.
Buyer interest grew in July. The Australian reported that KMD was receiving indicative offers for both the whole business and individual brand assets, with Rip Curl of most interest and billionaire Brett Blundy named as a possible suitor. A KMD spokesperson told Ragtrader at the time that the company would not comment on what it called highly speculative media commentary.
Meanwhile, trading has shown signs of recovery under the group’s Next Level strategy. Group sales grew 7.3 per cent to NZ$505.4 million in the first half of FY26. In the third quarter, gross margin reached 58.2 per cent, up approximately 258 basis points year-on-year.
Kathmandu has led the turnaround, with third-quarter sales up 12.0 per cent despite a net reduction of seven stores. Rip Curl has lagged, with same-store sales down 2.8 per cent in the second half.
The full year told a similar story. UBS analysts noted that Kathmandu sales rose 11 per cent in FY26, while Rip Curl sales grew 4 per cent but fell 1 per cent in constant currency terms, with pressure on Ozmosis same-store sales. Group underlying EBITDA lifted from NZ$18 million to NZ$42 million, helped by NZ$8 million in tariff refunds.
The broker retained its buy rating on KMD following the group’s FY26 results release on September 23, noting the balance sheet had been de-risked by the equity raise and those refunds, and that the rating rested mainly on valuation grounds that could potentially be recognised through corporate activity.
However, UBS cut its underlying EBITDA estimates for FY27 to FY29, citing higher operating costs, lower revenue from store closures and foreign exchange headwinds. Underlying operating expenses rose 4 per cent to NZ$565 million in FY26, with NZ$28 million in cost savings outweighed by cost-of-doing-business inflation, growth investment and currency movements.
“KMD’s underlying profit recovery in FY27e is likely to be limited by higher operating costs despite KMD’s cost saving being ahead of plan,” UBS noted.
The broker reduced its price target by 27 per cent to NZ$2.55 a share, which is above KMD’s current share price of NZ$1.65. This is up from NZ$1.53 on the day it released its preliminary FY26 results.
The target reflects a 1-for-25 share consolidation KMD completed in July, following the company’s equity raise in March and April.