Once a Leading 'Outdoor Legend'...Is Nepa Headed Down the Same Path as Homeplus? [Why&Next]

Nepa's Decline After MBK Acquisition
Operating Losses Surge 174% Last Year
Fails to Rebound Despite Outdoor Market Boom
Cash Flow Tied Up in Dividends and Interest Payments

It has been revealed that the outdoor brand NEPA suffered an even greater decline in performance last year. While the "activewear" market (clothing that can be worn both for sports and daily life) is expanding, especially due to the recent hiking boom among Millennials & Gen Z, NEPA's business has continued to shrink each year, and its operating loss has widened further. Industry experts point to the fact that, for over a decade, the leveraged buyout (LBO) debt was pushed onto NEPA after being acquired by the private equity firm MBK Partners, leaving the company unable to respond to market trends.

According to industry sources on April 24, NEPA's sales last year amounted to 288.8 billion won, down about 2.9% from the previous year's 297.3 billion won. This marked the fourth consecutive year of decline since 2022. During the same period, its operating loss widened to 2.1 billion won, a roughly 174% increase from the previous year's loss of 764.86 million won, making the deterioration in profitability even more evident.

Outdoor Market Rebounds... NEPA Continues to Decline

This stands in contrast to the current atmosphere in the outdoor market. With the resurgence of running and hiking, the outdoor market is rebounding. According to the Korea Federation of Textile Industries, the fashion consumption market during last winter season (from December of last year to February this year) reached 21.0143 trillion won. By category, outdoor purchases grew the most, reaching 2.5258 trillion won, a 22.5% increase from the previous year. In addition, casual wear grew to 6.5617 trillion won, up 18.6%, and sportswear to 2.6206 trillion won, up 8.9%. For example, The North Face, operated by Youngone Outdoor, continued strong performance with annual sales exceeding 1 trillion won for two consecutive years.

NEPA began in Bergamo, Italy in 1996 as a hiking footwear brand and entered the Korean market in 2005. After being acquired by Pyeongan L&C in 2006, NEPA entered a period of rapid growth, achieving 155 billion won in sales in 2010. In 2013, MBK Partners acquired a 94.2% stake in NEPA for about 997 billion won. At the time, NEPA recorded annual sales of 470 billion won and operating profit and net profit each exceeding 100 billion won, earning it the reputation of an "outdoor legend."

NEPA's early performance after the MBK acquisition was relatively strong. MBK acquired NEPA through a special purpose company (SPC) called TV Holdings in 2013. In the following year, when the outdoor market was at its peak, sales surged to 472.3 billion won. However, sales plummeted to 405.2 billion won in 2015, shrank further to 366.8 billion won in 2016, and then fell to the 200 billion won range last year.

MBK's Acquisition Cost Passed on... Financial Expenses Snowballing

Profitability began to decline immediately after MBK’s acquisition, with operating profit falling to 6.7 billion won by 2020. Although there was a rebound in demand for hiking and camping after COVID-19, the company has experienced another period of decline over the past two years.In particular, net profit deteriorated sharply from 2015, the year TV Holdings and NEPA merged. In the first year after the merger, the company posted a deficit of over 30 billion won, and in both 2020 and 2023, the deficit exceeded 100 billion won.

Analysts attribute these losses to the structure of MBK's acquisition. MBK financed about 480 billion won through borrowing at the time of acquisition, and then transferred this debt to NEPA by merging TV Holdings and NEPA. As a result, NEPA has had to bear not only the principal but also annual interest payments of around 30 billion won.The cumulative interest burden NEPA had to pay by 2023 alone amounted to 270.8 billion won. This means that cash generated from operations has been consistently used to repay financial costs rather than being invested in strengthening brand competitiveness.

The problem is that, despite this situation, the withdrawal of investment funds continued. From 2013 to 2021, MBK collected about 83.3 billion won in dividends from NEPA. As performance declined and cash outflows persisted, the company’s fundamentals weakened further. In fact, NEPA recognized a goodwill impairment loss of 10.5 billion won on its financial statements last year. Goodwill, which represents intangible business value such as brand power at the time of acquisition, was reduced from 419.8 billion won when MBK acquired the company to 153.1 billion won last year.

Debt Ratio Surged to 575% Last Year... "Competitiveness Undermined After MBK Acquisition"

The poor performance that has persisted for more than a decade has led to a deterioration in financial stability. The debt ratio jumped from 34% in 2013 to 575% last year. In particular, NEPA borrowed 180 billion won from rival outdoor brands K2 and Eider, using 1.15 million shares of NEPA and its trademark rights as collateral. The annual interest rate alone is 7.5%. In addition, last year, NEPA secured a 21.6 billion won asset-backed loan by pledging accounts receivable to Lotte Card and JB Woori Capital. This is an increase of 8.1 billion won compared to the previous year.

Since 2020, NEPA has also signed a supplier finance agreement (reverse factoring) with Lotte Card, raising funds by pledging inventory as collateral, which amounted to 35.1 billion won as of last year. This situation closely resembles the Homeplus case, another company acquired by MBK. After MBK acquired Homeplus in 2015 and transferred acquisition debt to the company, Homeplus suffered from both poor performance and a liquidity crisis, and has been undergoing corporate restructuring procedures since last year.

In the fashion industry, the NEPA case, along with Homeplus, is seen as a representative example of the limitations of private equity-style management. While strategies such as asset sales or financial restructuring after an acquisition may yield short-term gains, there are concerns that they can undermine a company's competitiveness in the long run. An industry insider commented, "With ongoing interest and financial pressure, it is difficult to engage in aggressive marketing or product innovation," adding, "In the end, this structure inevitably causes a company to fall behind, even when the market is recovering."

This content was produced with the assistance of AI translation services.