Dorel Reaches 'Agreement in Principal' to Go Private Following Cerberus Transaction

Nov 2, 2020
by James Smurthwaite  
GT Force 29 Pro

Dorel Industries has reached an agreement in principle to return to being a private business following an agreement with a buyer group led by Cerberus Capital Management and its current 'Family Shareholders' - Martin Schwartz, Jeffrey Schwartz, Alan Schwartz and Jeff Segel.

Dorel, the parent company of GT, Cannondale, Mongoose and more, was founded and went public in 1987 following a merger of Dorel Co. Ltd., a juvenile products company founded by Leo Schwartz in 1962, and Ridgewood Industries, a flat-pack furniture company established by Martin Schwartz, Jeff Segel and Alan Schwartz in 1969.

The Cerberus Capital Group's current investment portfolio includes more than 40 companies around the world across a wide variety of industries. It is apparently in exclusive discussions to purchase all Dorel shares for C$14.50 per share in cash except those held by the founders of the brand. This would leave the Family Shareholders approximately 19.18% of Dorel’s outstanding shares on an economic basis and 60.17% on a voting basis.

In a letter seen by Bicycle Retailer and Industry News that was sent to Dorel customers, Martin Schwarz explains that, "As a private company our shares will no longer be publicly traded on the stock exchange. We will have the liberty to pursue new opportunities faster, free from constant market scrutiny," with the "increased flexibility afforded to a private enterprise". The letter goes on to reassure recipients that the aim of the transaction is to grow Dorel with increased access to capital and that there are no financial concerns for the business.

Dorel began its search for a partner for potential privatization in December 2019. 25 potential partners were considered and on September 4, 2020 the Family Shareholders granted exclusivity to Cerberus to complete due diligence and negotiate terms for the proposed privatization.

The non-binding proposal is subject to Dorel and the Buyer Group entering into a definitive agreement, which will require shareholder, regulatory and court approvals, including approval by a majority of votes cast by Dorel’s minority shareholders. More information can be found in Dorel's press release, here.


88 Comments

  • 120 2
 Does anyone really understand what this article is saying? If you do, I have some questions about estate taxes.
  • 48 0
 Cerberus transaction sounds like a really shitty sci-fi action flick
  • 23 0
 @DaFreerider44: It was actually pretty good, but the sequel was shitty. I'm hoping Tricerberus Triaction is better.
  • 41 0
 Its actually a good deal. Family currently owns a decent share with majority voting rights to make decisions. Kind of takes the stock outstanding by individual owners out and allows them to run the business without having to check in with stock holders. The buyer did the right thing to offer a price per share about 3% higher than current market value so shareholders don't lose money.

This looks promising for Dorel and their future I think but just my opinion.
  • 2 15
flag jray152 (Nov 2, 2020 at 11:57) (Below Threshold)
 “Death tax”
  • 4 0
 @DaFreerider44: Does it have Olivier Gruner in and that bloke with the tache from Under Siege 2?
  • 1 0
 @vjunior21: wait... what?!
  • 3 1
 The only thing I don't get is how they can purchase at $0.50 below current market price? I would have thought you'd have to puchase at above market price.

Good on them for wanting to dump more money into this business. Increasing inventory, decreasing accounts receivable and negative net income. I wouldn't buy shares in Dorel at half the current price.
  • 3 0
 @DaFreerider44: I think Steven Segal made that in the DPRK
  • 5 2
 Cerberus, obviously nice guys at heart, used to own Remington (w/ their cash-cow AR-15 semiautomatic rifle) until it tanked after Sandy Hook...shuffled it off to Vista Outdoors to hang with Bell/Giro/Camelbak and their other "outdoor" brands... Talk about putting the Canon back in Cannondale;-)
  • 5 1
 @mtb4me: @mtb4me: Funny that this comes out on Election Day in the US. Dan Quayle, former VP under Bush 1....also of Potato(e) fame is their Chairman.

I love it when unappologetic, cut throat capitalists try to spin the investment in a bike company as good for the little guy. lol
  • 2 0
 @mtb4me: Didn't Cerberus also sink Chrysler after Daimler-Benz almost gave it away to them?
  • 8 0
 I have a feeling most people who understand this article don’t have much time to ride.

Source: am one of those people.
  • 3 0
 @Vindiu: I mean Dorel managed to take their stock (class b is the public stock) and take it from $39 a share in 2013 to $3.94 in Jan of 2020. So I think it is fair to say Dorel was excellent at shooting holes in the hull on their own.
  • 1 0
 @mtb4me: i thought the AR15 was Colt? Or these days some dps or armalite? I dont know guns that well. I did not know remington ever made one.
  • 3 0
 @BaldBilly:
Analogy: Say you are a co owner of a rental house/Air BNB with your ex wife/husband.

Scenario 1: You want to update the house/make changes as you are business minded and see that you can make more if you do so. Your ex that is still a partial owner doesn't want to make any changes so you are kind of stuck with leaving it as it is. You are left with feeling that you are leaving a lot of potential to earn more with that small investment.

Scenario 2: Since you want to move forward with the upgrades, identified in scenario 1, but your ex does not want to...you find a like minded buyer to buy her portion of the rental house. The new buyer agrees to let you make all of the decisions (60.17% authority) as it relates to the home...as your new partner believes you know best on maximizing the profitability of the rental home.

In this case Dorel decided to have a private equity group (Scenario 2 buyer) come in and replace the shareholders (ex wife/husband) as Dorel will have more freedom to enhance the business (rental home), grow the business, be more profitable, and skip the process of checking in with the shareholders (ex) on new decisions.

This is just a rough analogy and educated assumption but I believe it will play out well for both Dorel and their new partner. Hope that helps a bit.
  • 1 0
 @DaFreerider44: Not sure about transaction, but cerberus organization is a big part of amazing sci-fi video game series https://masseffect.fandom.com/wiki/Cerberus
  • 1 0
 @winko: wasn't the latest one not the best?
  • 1 0
 @DaFreerider44: Didnt play the latest one but I've heard that while some gameplay aspects were critisized the story is suposedly amazing! On the general note, ME2 has been usually refered to as the best in series...
  • 55 0
 Yes of course, sell yourselves to a company named after the guardian of Hell who devours any who attempt to escape mind, body and soul. What could possibly go wrong?
  • 9 0
 Better than ”Fraud Guarantee” which was involved in a scam financing a wall
  • 10 0
 @bikefuturist: Hey, don't talk about our walls... we need those to feel secure while shopping at walmart in our pajamas and couch surfing...
  • 7 1
 @bikefuturist: What was the scam? Saying the Mexicans would pay for it?
  • 7 1
 @commental: No there was actually the equivalent of a private go fund me to build a bunch of wall in a random place not even right on the border. They got a pile of money and built some stuff that is already falling over and a safety hazard. Good times.
  • 20 0
 CPA here: I'm excited for this. If I were running R&D at a bike company, this would be a huge weight off my back, not having to please to investors who often only see things through the lens of metrics in financial statements. As the article stated, this type of structure should allow for much faster development and more room for creativity.

But, If not done properly (and that's a very real possibility), this could go really south and would suck for these companies. I guess we'll see.
  • 3 0
 Have you had a look at their financials? There's a lot more to be worried about than just their R&D budget. I'm kind of shocked they haven't put on fire sale at least a few of their business units.
  • 3 0
 I see what you’re saying but I’m not sure this deal comes with a whole lot of freedom like with a privately backed a tech company.

In fact I think the outcome just became a lot more binary: They’ll likely increase debt to buyback shares, hopefully there’ll be some money left for investment. Once a company is geared up like that it will either go fast and make money or fall on its ass. Either way I’d expect massive cost reductions and a focus on only the most profitable segments. Hopefully they see the value in the athlete programmes and WynTV!
  • 18 4
 GT has to be the worst bike company model ever. Never get a reply back from them. Dealers don't know when or if parts will be available. Kona, Transition, Evil, all reply same day, and have even shipped parts same day. The little guys are winning my business.
  • 29 14
 GT also makes terrible looking and mediocre performing bikes. Would never buy one if the service was A1
  • 32 7
 @LeoTProductions: Seems to be performing OK for Martin and Ethan...
  • 5 2
 Sadly i have to agree. I grew up on GT bikes and always loved them. When i was getting back into biking a few years ago they were my first choice purely due to brand loyalty and nostalgia. I had a few issues with the bike over the course of a year, and they never emailed me back. After reaching out for documentation on certain specs of the bike several times and never hearing back, I ended up selling the bike and not buying GT again. It was a really sour taste to something i was originally proud to own.
  • 13 2
 @ctbiker888: Seriously though, it's freakin Martin Maes. He would outperform most other riders on pretty much any bike. The fact that he is on a GT doesn't account for much.
  • 4 2
 I agree. I would like to buy a GT, as they sponsor some of my favourite riders and events and it is one of the few brnads my local bike shop sells. But whenever I look at the bikes there is nothing there that interests me.
  • 3 2
 I think this is a common issue with most brands, you scroll down to comments or google it, and there's always someone who had a trouble with ANY brand. THAT someone who complains is nothing compared to the thousands that stand somewhere happy. I've been a GT fan for around 25 years, and I've never recommended this brand to a friend just because I like it, there's plenty of around that are as good or better. Anyway, I've always traded emails, swapped 2 frames, and my biggest complain is the lack of merchandise. I almost never comment bad things about other brands, it's just stupid in a sport that ALL of the brands give you frames with tolerances of a wheeled dumpster, designs and marketing of 20 year old that failed to be a proper copy on a big brand.
  • 5 0
 @t-stoff: Nah. I deal with a lot of brands. Transition, Evil, Kona, Cane Creek, Push, E13, Race Face...the list goes on. Every one that I named responds to emails same day. When a dealer can't get a hold of a GT rep, there's a problem.
  • 3 0
 @chriskneeland: great point. Ibis does this for tech questions, and the founder himself responds. Got advice on shock tune and tire inserts from a genuine expert - was genuinely surprised.
  • 1 0
 @t-stoff: I can go on Santa Cruz’s website right now and find part numbers and torque specs WITH diagrams and instructions on which parts to grease or loctite instantly for any bike they have sold on their history.

That’s amazing.
  • 3 0
 I have to say experience (and the experience of a couple of folks I know), here in the UK is completely different. GT have been really good with their aftersales and far better than several other bike brands. Also, the two UK dealers I have used were brilliant (Shout out to Hammoon Cycles, Dorset!). Bike companies and dealers are all struggling with supply and demand right now so I reckon that parts are pretty much a lottery - either companies have the parts or they don't. Subjective I know but I personally think GT are making some of the best bikes they have in 20+ years.
  • 1 0
 @t-stoff: I can't speak for their service, but I remember when Whistler first switched over to GT's for their rental fleet. My son and I were both surprised at how much poorly these bikes rode compared to the previous rentals. It was the worst bike I'd ridden in years. GT may have updated their geometry etc the past two years, but it would be hard for me to put any money to rent one again, let alone purchase one, when there are much better options out there.
  • 1 0
 @ctbiker888: it’s the rider not the bike
  • 1 0
 I had a similar experience with them. My Sensor came with an impossibly short seat post and it did not come with lock on grips as spec'd. Tried reaching via email for correct parts 3 times without a response. I gave the bike a decent review on their website but noted the issues I had with the seat post being too short to ride at proper height. Never got posted on their website, I don't think any got published for 2020 even though the website said "be the first to write a review". Decent bike, but not going to buy another unless it's an very good deal.
  • 15 0
 The Illusive man is at it again
  • 1 1
 As long as the seatpost doesn't come with a Dragon's Tooth hidden in the mechanism, that would really spoil your day.
  • 10 0
 It sure seems to me that the brands that don't have stock holders seem to care more about the product and customers. When Dorel bought Cannondale etc. it didn't take long to notice the difference. Stock holders don't care about how good a bike rides, they care about stock price. Cannondale has been great of late and lets hope it only gets better from here.
  • 17 4
 What the f*ck does it say and what the f*ck does it mean?
  • 42 0
 Dorel doesn't wanna be a publicly traded company any more so they can stop being subject to so much market scrutiny and having to answer to stockholders who may not actually care about anything other than whether their stock holdings go up or down. Cerberus Capital is a private group of investors who will bring in the big bucks to buy out a majority of the current common stock but the founders of the company will retain majority voting rights. Cerberus will be looking to possibly restructure operations to make them more profitable, meaning a good return on investment for them, and the founders will have better access to funding (lower interest rates since Cerberus is huge and is backing them) so they can grow their business / improve on existing operations.

In theory, this seems like a win/win move if everyone is happy. Cerberus gets a piece of the white-hot biking industry, GT/Cannondale get some sweet low-interest cash to Make GT/Cannondale Great Again, and the founders keep the final say of what the company does. In practice, see what happened when Chrysler was on death's door after being picked clean by Daimler-Benz and how Cerberus was either the death knell for Chrysler's independence or the lifeline needed to keep the company functioning. All I know is, a Cerberus-era Chrysler was a real shitbox of a vehicle, even by historical and modern Chrysler standards.
  • 14 0
 @sjma: That was a lengthy but very nice translation into human. You, sir or madam, are a wonderful human being.
  • 8 0
 @YanDoroshenko: WFH is slow, my bike doesn't show up for at least 4 months, and the roommate is on the trainer so I've got all the time in the world! It's the least I could do.
  • 3 0
 @sjma: I'm as dumb as dog sh^t and understood that perfectly, well done!
  • 5 0
 As long as it doesn't f*ck with WynTV I don't give a f*ck.
  • 2 0
 @sjma: anyone who makes what seems boring interesting and comprehensible
  • 3 0
 @sjma: is a God damn hero
  • 9 0
 For what it is worth "Agreement in Principal" should probably be "Agreement in Principle"...

prin•ci•pal prĭn′sə-pəl
adj. First or highest in rank or importance. synonym: chief.
adj. Of, relating to, or being financial principal, or a principal in a financial transaction.

prin•ci•ple prĭn′sə-pəl
n. A basic truth, law, or assumption.
n. A rule or standard, especially of good behavior.
  • 2 0
 The correct legal vernacular as it relates to law and finance is Principal.
  • 8 0
 Cerberus. Ruined Remington and many other companies.
  • 5 0
 After what Daimler-Benz did to Chrysler in the early-mid 00's, I'm amazed Cerberus was able to give Chrysler a lifeline long enough to find a new partner in Fiat. Those Cerberus-era Mopars were absolute piles, even by contemporary FCA standards
  • 4 0
 Bertha look the bicycle internet is talking about Leo Schwartz from the old neighborhood. I'm just here shopping for electrical bicycles and he pops up. Yeah Leo Schwartz. His wife used to play pinochle with the oriental lady. I haven't seen him since he called me a schmuck at the tennis courts and now here this is talking about him and his kids. Yeah you remember Alan Schwartz who was always peeing in his pants.
  • 6 0
 I would LOVE for the Teocali line to get some justice!
  • 2 0
 Just like early Cannondale carbon chainstays the deal will crack and fail....I love my Cdales until I hate them. Partly covids fault but of the 3 local shops who sell them, none of them can ever get me parts at a reasonable speed. Downlow rebuilt kit....to Cdale USA in mid dec, shop told me not to call them about them until mid jan. A bloody standard dropper rebuild kit....not looking for a 2005 lefty shock boot or rebuild it for that wacky dual pull shock they had for a few years.... Anyway I digress....My feeling is private is good....private venture is bad....This wont be the family business back in the hands of the family....it will be brand management in the hands of the accountants, lawyers and MBA overlords. Masybe I should buy a Pole....or maybe not.
  • 1 0
 for my non economic amigos, this means that they will not be able to sell shares on the stock market. Lets say they need idk 2 million $ for whatever they would sell some shares on the stock market to get that capital, the problem is if those shares are trading at a bad price they will need to sell more than they can afford. Buy going private they dont need to do that, they can just get insitucional investors (big money people, banks...) to buy some with less hassle. Companys who do that is cause they stock price is doing badly.
  • 3 0
 The company that now owns Cannondale, GT and Mongoose is named after the three headed dog that guards the gates of hell. Neat.
  • 1 0
 I don't really understand how this will work. They want to buy back all their shares for CAD$14.50 per share, but they are currently trading at 15.69, so this is a crap deal. As a shareholder, can they just force me to sell at their price? Can I keep my shares until I decide to sell at a price/time that suits me?
  • 4 0
 So is this good or what??
  • 4 1
 Probably less cash for Ratboy
  • 1 1
 @dark-o: Ignore my message, forgot they're under the same parent.
  • 1 0
 Well, they don't have to appeal to any investors, so they can more freely decide what they want to do with less of an external incentive to certain business practices. Then again, the Cerberus Capital Management group owns 80% of the company, and while they can't outvote the Family Shareholders on any decisions, due to them having 60.17% of the voting power, they can certainly steer the company to a certain point by holding the majority of the shares.

We also don't know the motivations of any of the two parties, which is probably the bigger influence on how it will turn out than just the return to being a private business.

Only time will tell I guess.
  • 4 1
 @jaame you’ve given a textbook example of supply and demand not setting efficient prices due to irrational behavior.
  • 1 0
 Absolutely. So why is it that nobody is DEMANDING a bike from GT, despite their impressive athlete roster and a strong marketing budget? Because the bikes look a bit awkward and the geometries are a bit behind the curve?
Cannondale might be a bit marginal as an MTB brand, but they are a very big and well-respected player in the drop bar world. And probably the coolest of the World Tour brands.
  • 3 0
 Why do investment companies always have such evil sounding names? lol
I mean... apart from the fact they’re evil...
  • 2 0
 Consolidation perhaps? Cannondale, GT & Charge as mid to premium mtb line and Mongoose / Schwinn for box stores?
  • 7 5
 You can consolidate all cannondale, GT and mongoose into one single monthly lump of metal delivered straight to the door of the smelter and cast into little bugle playing cherubs to perch on the lawns of France for all I care.
  • 7 0
 If it was me I'd make Cannondale Road and XC bikes, GT trail, Enduro, DH and racing BMX, Mongoose for street/dirt BMX and Charge for Fixie/Commuter/Town bikes. Schwinn for the big box BSOs. It always strikes me as odd when brands owned by one group have massively overlapping ranges, there is enough competition already without competing against yourself.
  • 2 0
 @Fix-the-Spade: illusion of competition perhaps... shop down the road from where i work (cannondal dealer) is a GT dealer. always struck me as odd. to someone who doesn't realize they're the same they might think theyre choosing between a GT or a cannondale but parent company profits either way
  • 1 0
 Lucky break for Doral. They were trading at under $1 per share in early 2020. Pandemic-fueled demand saved them from the brink, it appears.
  • 5 5
 Ah, don't hey own(d) Remington and Bushmaster, makers of fine automatic weapons?! Less of this in our industry, please...https://www.nytimes.com/interactive/2019/05/01/magazine/remington-guns-jobs-huntsville.html
  • 2 0
 So does this mean better or worse prices for bikes?
  • 4 0
 I think that depends on the growth expectations of private ownership. The problem with public ownership is that shareholders expect a certain return. Private ownership can get equally greedy sometimes, or ownership can practically become a non-profit, expecting only the slimmest of returns in exchange for building value in the company.

I've often wondered if these massive brands with oodles of production capabilities could sell off the "profitable" side of the business (cheap junk) and keep the branding, while growing the customer's appreciation for their uniqueness. Imagine GT, Cannondale and Mongoose ONLY selling high end bikes at good values
  • 2 0
 both!
  • 1 3
 Supply and demand will determine the prices.
  • 1 0
 @PHeller: Yep, going private just relies less on the market and more on the motivations of those running the company.
  • 4 0
 @jaame: Yes and no. Supply and Demand determines price when "cost" isn't factored into the equation, but the demand can be generated by lower prices. You can have lots of supply but no demand if the price is too high because ownership demands a certain profit margin, and perhaps ownership decides it's better to not sell the product than sell it a lesser price - otherwise known as "maintaining scarcity" - (Premium Pricing or Luxury Pricing)

Likewise, a loss leader might sell for no profit, but be interested in generating a higher market share.

With private ownership you never what you're going to get.
  • 1 0
 @PHeller:
I think this is a good assessment. You will either see it go in the direction of selling the low end brands (high profitability and retain the high end brands for slimmer profits. The other way is the opposite, sell high end brands and keep the low end high profit brands. I can assure you that it will not be anywhere in between. All depends on the focus of the new buyers and the remaining family members.
  • 10 1
 @jaame: It's funny because I think you actually believe that line about market supply, market demand, and a firm's decisions. Yes, supply and demand do determine prices in your 100 and 200 level classes, until you start observing real-life market behavior and realize that efficient markets don't exist and neither do rational consumers or firms.

In reality, everything in the market is lumpy and human and unpredictable and irrational. Like @PHeller said. If supply and demand actually determined prices, Apple would lower their prices and increase production and they sure as hell wouldn't have $200 billion in cash reserves sitting around not invested in their business.
  • 7 2
 Everyone wants an iPhone, so they sell them for high prices. Oppo has a phone that does everything the iPhone does but it's not desirable, so the price is low. The actual cost of manufacture for one or the other is within $80 American.
  • 2 1
 @jaame: bingo
  • 1 0
 @jaame: I just got the oppo S9. It's actually amazing and is as almost as cheap as Samsung's cheapest smart phone.
  • 1 0
 This will ultimately going to result in better bikes from these companies.

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