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My hockey friends. My neighbor. My co-worker. (Click to enlarge) Firms that generate a free cash flow margin (free cash flow divided by total revenue) above 5% are usually considered cash cows. Revlon's free cash flow margin has averaged about 6.3% during the past 3 years. As such, we think the firm's cash flow generation is relatively STRONG.
The recent concerns over the viability of a company based on a very limited product line have chipped off about 30% of the market capitalization (now just under $1B), and suddenly this company looks very very affordable for Nike. The beauty of this deal is that when Nike plugs K-Swiss into its existing distribution channels, Nike not only gets the benefit of a turnaround sales story at K-Swiss, but it also enjoys the profit margins which are currently almost double that of Nike's. Cost savings and revenue expansions are a great formula for acquisitions.
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