SCOTTS VALLEY, Calif. (BRAIN) — Fox Factory has agreed to guarantee earn-out payments to the investors who sold it RFE Holding (the holding company for Race Face and Easton Cycling) a year ago. The guarantee allows Fox to further integrate the brands.
The earn-outs were agreed to in the intial purchase agreement, which was agreed to Nov. 13, 2014 — a year ago last Friday. The payments would be made to the RFE investors depending on the performance of the Race Face and Easton brands over the course of Fox's fiscal 2015 and 2016. This required that Race Face and Easton businesses be operated separately for accounting purposes. The earn-out agreement also put other operational covenants on how Fox operated RFE, including restrictions on the amount of operational capital it had to retain for RFE.
Fox said RFE achieved the maximum earn-out level in 2015, resulting in a payment of $9 million Canadian to the sellers. RFE is on track to achieve the maximum 2016 earn-out payment of $10.5 million Canadian. So Fox has now guaranteed the 2016 payment ahead of time, so that it can get free of the accounting and operational restrictions and accelerate the integration of Race Face and Easton with the rest of the company.
The new agreement, disclosed in a SEC filing that Fox made on Monday, will make it easier for the company to offer discounted bundles of Fox, Race Face and Easton products to OEM customers. It also will free up RFE's director Chris Tutton, the principal investor in RFE prior to the sale, "to focus on broader initiatives (rather than just the RFE business)," Fox said.
Fox said further integration will allow it to better align international distribution and share technology across the brands, simplify accounting, and include Race Face and Easton in a potential expansion of Fox's factory in Taiwan.
