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

Outdoor brand Nepa's poor performance worsened last year. Despite the recent hiking boom among Millennials & Gen Z, which has expanded the 'activewear' (clothing suitable for both exercise and everyday wear) market, Nepa's scale has continued to shrink annually, and its operating losses have deepened. There are criticisms that the company failed to respond to market trends because MBK Partners, the private equity fund manager that acquired Nepa, has burdened the company with leveraged buyout (LBO) debt for over a decade.

According to industry sources on April 24, Nepa's revenue last year was 288.8 billion won, down about 2.9% from 297.3 billion won the previous year. This marks four consecutive years of decline since 2022. During the same period, operating losses reached 2.1 billion won, expanding by approximately 174% compared to the previous year's 764.86 million won, making the deterioration in profitability even more pronounced.

Outdoor Market Rebounds...Nepa's Negative Growth Continues

This is in contrast to the current mood in the outdoor market. As the popularity of running and hiking rebounds, the outdoor market is recovering. According to the Korea Federation of Textile Industries, fashion consumption during last winter season (December last year to February this year) was tallied at 21.0143 trillion won. By category, outdoor wear purchases amounted to 2.5258 trillion won, up 22.5% year-on-year, showing the largest growth. Meanwhile, casual wear grew by 18.6% to 6.5617 trillion won, and sportswear by 8.9% to 2.6206 trillion won. For example, The North Face, operated by Youngone Outdoor, has managed to achieve annual sales of 1 trillion won for two consecutive years.

Nepa started in 1996 in Bergamo, Italy, as a hiking boots brand and entered the Korean market in 2005. After being acquired by Pyeongan L&C in 2006, it entered a phase of rapid growth, reaching 155 billion won in sales in 2010. In 2013, MBK Partners acquired a 94.2% stake for approximately 997 billion won. At that time, Nepa posted annual sales of 470 billion won, with both operating profit and net income exceeding 100 billion won, earning a reputation as an 'outdoor legend.'

The initial performance after MBK's acquisition was relatively solid. MBK acquired Nepa in 2013 through a special purpose company (SPC) called TV Holdings, and as the outdoor market peaked the following year, sales grew to 472.3 billion won. However, sales plummeted to 405.2 billion won in 2015, then further to 366.8 billion won in 2016, and finally sank to the 200 billion won range last year.

MBK Passes on Acquisition Debt...Financial Costs Snowball

Profitability has been on a downward trend since MBK's acquisition, with operating profit dropping to 6.7 billion won by 2020. Although demand for hiking and camping rebounded after COVID-19, Nepa has experienced negative growth again over the past two years. In particular, net income has deteriorated sharply since TV Holdings and Nepa merged in 2015. The first year of the merger saw a net loss in the 30 billion won range, and losses exceeded 100 billion won in both 2020 and 2023.

Analysts attribute these losses to MBK's acquisition structure. MBK financed about 480 billion won through debt at the time of the acquisition and transferred this debt to Nepa by merging TV Holdings and Nepa. As a result, Nepa has had to shoulder not only the principal but also around 30 billion won in annual interest payments. The interest expenses Nepa paid through 2023 alone amounted to 270.8 billion won. This means that cash generated from operations has been prioritized for servicing financial costs rather than for investment or strengthening brand competitiveness—a structure that has become entrenched.

The key issue is that investment recovery continued even under these circumstances. MBK collected about 83.3 billion won in dividends from Nepa between 2013 and 2021. As cash continued to flow out while performance declined, the financial health of the company weakened further. In fact, Nepa recognized 10.5 billion won in goodwill impairment losses on its financial statements last year. Goodwill is a form of premium assigned to intangible business value, such as brand power, at the time of acquisition. Nepa's goodwill value shrank from 419.8 billion won at the time of MBK's acquisition to 153.1 billion won last year.

Debt Ratio Soars to 575% Last Year..."Competitiveness Damaged After MBK Takeover"

Poor performance persisting for over a decade has led to a deterioration in financial soundness. The debt ratio surged from 34% in 2013 to 575% last year. In particular, Nepa borrowed 180 billion won at an annual interest rate of 7.5%, pledging 1.15 million shares and trademark rights to rival outdoor brands K2 and Eider as collateral. Furthermore, last year Nepa took out a 21.6 billion won asset-backed loan from Lotte Card and JB Woori Capital, using accounts receivable as collateral—an increase of 8.1 billion won from the previous year.

Since 2020, Nepa has also been raising funds by entering into a supplier financing agreement (reverse factoring) with Lotte Card, using products as collateral, totaling 35.1 billion won as of last year. This situation is reminiscent of the Homeplus case, which MBK also acquired. After MBK acquired Homeplus in 2015 and passed on the acquisition debt, the company suffered from declining performance and a liquidity crunch, and has been under corporate rehabilitation procedures since last year.

Within the fashion industry, Nepa's case, along with Homeplus, is seen as a representative example of the limitations of private equity management. While strategies to maximize investment returns through asset sales or financial restructuring after an acquisition may yield short-term results, there are criticisms that they can undermine a company's competitiveness in the long term. An industry insider said, "With ongoing interest burdens and financial pressure, it is difficult to pursue aggressive marketing or product innovation. In the end, this structure inevitably causes the company to fall behind, even in a market recovery phase."

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