SRAM Announces Strategic Investment from Lehman Brothers Merchant Banking

Aug 7, 2008
by Luc 'Acadian' Albert  
News Source: Eric Schutt
SRAM announced today a new equity partnership with Lehman Brothers Merchant Banking (LBMB), one of the seven asset classes of Lehman Brothers' global private equity business. The partnership is the result of an extensive process through which SRAM has sought a strategic financial investor to support its continued growth in the global bicycle components industry. LBMB will be a minority investor in SRAM. SRAM Senior Management will continue to lead the Company.Headquartered in Chicago, with product development and manufacturing facilities in California, Colorado, Indiana, Taiwan, China, Germany and Portugal, SRAM produces a full line of high performance bicycle components for original equipment manufacturers and independent bike dealers (www.sram.com). The Company markets its products under the SRAM, RockShox, Avid, Truvativ, and Zipp brand names. After more than 20 years of dedication to the bike industry, SRAM expects 2008 revenues to approach $500 million.

“The SRAM team has done a great job building a global organization in an exciting industry,” said Stan Day, chief executive of SRAM. “We have now achieved scale where we believe it is prudent to add an experienced institutional investor to our shareholder base. We are very pleased that LBMB is committing its capital and expertise to SRAM.”

“SRAM has grown to become a true leader in its industry without losing touch with its entrepreneurial roots and its core values,” said Charlie Moore, LBMB managing director. “We are privileged to partner with Stan Day and the SRAM management team as they build on the Company’s strong momentum in the bicycle components market.”

In connection with the transaction, the Company is establishing the SRAM Cycling Advocacy Fund. The Fund, initially capitalized with $10 million, will support advocacy in the U.S., Europe and Asia on policy issues affecting cycling infrastructure and the bicycle industry. These funds will be paid out approximately $2 million per year for 5 years. SRAM will seek advice from leading industry associations like Bikes Belong on proposal evaluation and fund distribution and expects to have a grant request process in place by November.

“Bikes are a constructive transportation and recreational solution. Governments everywhere are recognizing their value to address traffic congestion, environmental concerns, health promotion and high gas costs. The Fund will support grass roots advocacy efforts focused on improving cycling infrastructure,” said Mr. Day.

“With market leadership comes responsibility,” Mr. Moore added. “We are pleased to see SRAM establishing the SRAM Cycling Advocacy Fund, which will give the industry a vehicle to highlight issues of importance to the cycling public.”

The transaction is expected to close in late September. J.P. Morgan served as exclusive M&A advisor to SRAM, and Lehman Brothers served as exclusive M&A advisor to LBMB, in connection with the transaction. The law firms Lewis, Rice & Fingersh and Gibson, Dunn & Crutcher served as legal advisors to SRAM and LBMB, respectively.


About SRAM

Founded in 1987, SRAM produces a full line of high performance bicycle components for original equipment manufacturers and independent bike dealers. The Company is headquartered in Chicago with product development and manufacturing facilities in California, Colorado, Indiana, Taiwan, China, Germany and Portugal. The Company markets its products under the SRAM, RockShox, Avid, Truvativ, and Zipp brand names.

About Lehman Brothers Merchant Banking

Lehman Brothers Merchant Banking manages funds that seek significant long-term capital appreciation through direct investments in established operating companies in partnership with management. Since 1986, Lehman Brothers Merchant Banking has raised and managed
four institutional funds and several employee investment vehicles, with total committed capital in excess of $8.0 billion. Lehman Brothers Merchant Banking Partners IV closed successfully in June 2007 with over $3.3 billion of capital commitments from institutions, high net worth individual investors, and Lehman Brothers, its affiliates and employees.

Lehman Brothers' global Private Equity business, founded in 1984, currently oversees approximately $35 billion across 38 different fund strategies and seven asset classes: Merchant Banking, Venture Capital, Real Estate, Credit, Infrastructure, the Strategic Partners Group, and Fund Related Investments which includes fund of private equity funds, fund of hedge funds, and the Manager Research and Selection Business.


12 Comments

  • + 10
 I say right on, it is only for the best I believe. Yes, when companies focus more on money, quality and customer service does take a backseat to profit. Thats business, and a company has to be at least profitable to feed it employees, and owners. This is the bike industry though, SRAM was started by people who were passionate about our sport, they believed they could make a difference. They were people who believed they could make high quality components for a quickly evolving sport, while making some profit.

They are one of the biggest manufacturers. To start manufacturing bicycle parts, you need to know allot about biking, most importantly, I think you need to be a rider to understand the physics and riding techniques encountered and used. Then you know what will work and what won't, what will sell and what will collect in a tool box of spare parts, never seeing the light of day again. Our industry isn't like any other industry, our industry is about riding, having fun, and being active. There are allot of people who don't ride bikes, they drive cars, car companies know this. The fact that the automobile is the dominant form of transportation in our day and age. They can sell their cars for huge profit, with low quality, if you don't like it, there are multiple other companies to go buy from. I believe riders will always think about other riders, and what they want. I feel we are a tightly knit community within our sport. We pay to play, and the industry knows we need high quality products we can trust.

Right now, bicycling is taking on a new face, it is becoming a competitor to the automobile. The rising gas prices, increasing demands for less emissions into the environment, and an obese population are making it more attractive to people who are concerned about these subjects . I think SRAM is thinking down the road, when the bicycle becomes an everyday form of transportation. They don't just manufacture parts for certain genres, they manufacture parts for the whole bicycling industry, from kids bikes, to commuters to dirt jumpers to downhill and freeride rigs.

The need for research and development is increasing with the way mountain biking is progressing also. I'm sure SRAM will use their new found investor as a means to streamline an already impressive organization. We should only see good things and hopefully lower prices :p from the new partnership. - Go Ride.
  • + 4
 umm...yeah, what he said.
  • + 3
 everythings good but.....lower prices? Oil is going up, raw materials are going up, costs of living and producing are going up. Lower prices for about 14 days, then we'll feel the burn! haha
  • + 3
 Thats why I said hopefully....
  • + 9
 Not to be one to start big ol debates, but I think it's a good thing they're getting some financial backing. Firstly, SRAM still has a majority interest. Even companies like Fox who at the start of the year sold of a majority interest in the company are still making quality products. http://www.pinkbike.com/news/Fox-Shox-Compass-diversified-holdings-2008.html Secondly, nobody wants to see the product suffer for the sake of more money. I think it was a good choice by SRAM since they have become such a huge company. I mean $500 million in revenue expected? That's amazing!
  • + 9
 Good to see more BIG money being pumped into the industry. More money (hopefully) = cooler parts for less $. well, i'm an idealist.
  • + 2
 I have been a diehard SRAM customer for a longtime now, and I am very weary of this. Normally, I am an idealist and a protagonist, but statistics have shown in the past when companies focus more on money, customer service and quality of product go down... I hope I am wrong.
  • + 2
 dude, your right i hate to say. its all about the money now days.
  • + 0
 ya people should stop being so greedy
  • - 3
 This is going to be nothing but bad news. The bottom line will be all that matters, product quality and customer service will suffer because of it. But then again, I guess that's the American way.
  • + 6
 If product quality and customer service go down the drain, won't profits eventually fall as well? The bike industry is much unlike others like the car industry in that tiny companies can start, grow and remain competitive (Nemesis, Dobermann, Black Market, Deity although this is all fits into a niche of mountain biking).

Like the article said, the investor only holds a minority stake in the company, so they shouldn't have too much influence on the company's direction.
  • + 6
 oh shit guys, here we go! Make way for the industy boom and people who only see share prices and profit charts. Glad to see we learnt our lesson from watching what happened to surfing and skating and bmx.........oh wait no we didn't!

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