May 1, 2012, 12:00 AM

Dream team: Sports gear retailer Fanatics acquires rival Dreams Inc. for $183 million

Dream team: Sports gear retailer Fanatics acquires rival Dreams Inc. for $183 million.

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Dreams Inc.'s solid e-commerce sales growth of 27.7% year over year apparently didn't escape the attention of one of its chief competitors, Fanatics Inc. and its parent company Kynetic LLC. Fanatics last month announced it will pay $183 million to purchase Dreams, which operates and the web stores for a number of well-known sports teams and organizations such as the Chicago Bulls, Majestic Athletic, Comcast Sports, NBC Sports and the Philadelphia Eagles.

Under the terms of the deal, Fanatics and Kynetic, the e-commerce company launched by former GSI Commerce Inc. founder Michael Rubin in September, will pay $3.45 per share for all of Dreams' outstanding shares. Rubin sold most of the assets of GSI Commerce to eBay Inc. in June 2011 in a deal valued at $2.4 billion. Rubin's new company, Kynetic, includes limited-time sale site RueLaLa, Fanatics, a group of e-retail sites that sell team sports apparel and ShopRunner, the multimerchant free-shipping program that competes with Inc.'s Prime.

Rubin has said he expects Kynetic will produce more than $1 billion in revenue from e-commerce this year, its first full year of operation. He says he expects $600-$700 million of that total will come from Fanatics.

Dreams on the rise

Dreams, which posted web sales of $113.0 million in 2011 up from $88.5 million in 2010, will help Kynetic move toward that goal and add to Fanatics' portfolio of web stores that sell licensed sports apparel and related gear, such as Fanatics also owns TeamFanShop, an e-commerce services company that operates on behalf of Major League Baseball and on behalf of the National Football League.

"Fanatics shares our focus on the customer, innovation and growth," says Dreams CEO Ross Tannenbaum. "This combination will enhance Dreams' ability to achieve its goals, while realizing a significant and immediate all-cash premium for our shareholders. I am confident this merger is the right decision for Dreams and our shareholders."

To finance the deal Fanatics is using an unspecified amount of equity financing from investment banking firm Insight Venture Partners, which has previously invested in private-sale retailers HauteLook and Privalia Venta Directa S.L., and mobile commerce technology vendor Kony Solutions. It's unclear, once the deal is closed, if Dreams will remain a stand-alone entity or be folded into Fanatics, which posted web sales of $525 million in 2011, up 188.8% from $181.8 million in 2010. Fanatics was acquired by GSI Commerce in February 2011.

The acquisition of Dreams also gives Fanatics a store base. Dreams operates a network of about 30 sports apparel and gear stores in locations such as the Caesars Forum Shops in Las Vegas and the Mall of America in Minneapolis.

"The addition of Dreams will enable Fanatics to accelerate our investments in product assortment, mobile and e-commerce technology, and a regional fulfillment infrastructure to better serve our customers and our partners. Together, we will be much better-positioned to deliver a superior customer experience," says Fanatics CEO Alan Trager.

New leadership

"We are bringing together two of the most passionate management teams in licensed sports products," Trager says. Shortly after Fanatics announced the acquisition of Dreams, it also announced the hiring of Jamie Davis as president. Davis has 20 years of sports industry experience but has never run an e-retail business. He most recently was president of Versus, the cable TV sports channel now called NBC Sports Network. Prior to Versus, he worked as managing director of Asian sports broadcasting company ESPN Star Sports, which owns 15 television networks in 24 countries. There he took the company from broadcasting only to providing multimedia digital content, Fanatics says.

"I am confident that Davis' leadership and guidance will help us grow our brand and continue to build upon the successes of our company," Trager says. Fanatics says it expects the deal to buy Dreams will close in the third quarter.

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