Fossil Announces Misfit Acquisition for $260 Million

The Pressure Is on to Make Richer Wearables

Fossil_MisfitOn 12 November, Texas-based Fossil — a leading maker of watches, jewellery, handbags and other style accessories — announced its agreement to acquire Misfit Wearables for $260 million. Misfit was founded in 2011 and is a privately held maker of activity trackers, sleep monitors and connected light bulbs. Fossil expects the deal to be completed by the end of 2015, subject to customary closing conditions and regulatory approval.

CCS Insight’s estimates suggest that Misfit is the fourth-largest manufacturer of quantified self devices in the world. It has a particularly strong position in China, but competitive pressure from the top three players — Fitbit, Xiaomi and Jawbone — is making it difficult to gain more share.

Our worldwide market forecast for wearables expects that quantified self devices, including fitness and activity trackers, will account for 57 percent of all wearables sold in 2015, and will continue to account for more than half of the wearables market volume until 2019.

The acquisition was announced by Fossil alongside its 3Q15 report. Fossil’s results and forward guidance disappointed investors, causing the company’s shares to decline more than 15 percent in extended-hours trading. It posted net quarterly income of $57.5 million, compared with $103.7 million in the third quarter of 2014, and revenue fell to $771.3 million from $894.5 million a year ago. The company’s management referred to the current environment for its product line as “challenging”.

Fossil reports sales of more than 50 million watches and accessories per year, and has recently unveiled a set of wearable devices including fitness bands and smartwatches (see Instant Insight: Fossil Announces Fossil Q Line of Wearable Devices). The acquisition of Misfit will enable even more of Fossil’s products to become connected. The initial focus of connectivity will be on watches, but Fossil says that its portfolio of accessories will also become connected — a reference to the Internet of Things. Fossil will utilise Misfit’s existing cloud-based platform, device applications, intellectual property rights and talent pool to expand further into wearables and connectivity.

In addition to its own-branded watches, Fossil manufactures devices using leading style names including Adidas, Burberry, Diesel, DKNY, Emporio Armani and Michael Kors, and these could also benefit from Misfit’s platform.

CCS Insight believes that the introduction of the Apple Watch was a key incentive for the acquisition, as the device puts pressure on the makers of traditional watches. CCS Insight’s recently released wearables survey indicated high consumer awareness of the Apple Watch, which had leaped ahead to define the product segment. The survey outlines, unsurprisingly, that Apple has the lead in wearables mindshare.

CCS Insight had predicted more deals and partnerships among makers of wearables and watches (see Instant Insight: Baselworld 2015, for example). A series of acquisitions earlier in 2015 included moves by Adidas (which acquired app maker Runtastic), Amer Sports (which acquired Sports Tracker) and Under Armour (which acquired Endomondo, MapMyFitness and MyFitnessPal).

We see Fossil’s acquisition of Misfit as a smart move that should support Fossil’s transition into connected things. The company will continue to face challenges as the market for watches shifts into smart devices and centres on ecosystems from Apple and Google, but Fossil’s own-brand portfolio and array of top partners provides it with a strong chance of staying relevant.

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