Dorel Reaches 'Agreement in Principal' to Go Private Following Cerberus Transaction
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.
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This looks promising for Dorel and their future I think but just my opinion.
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.
I love it when unappologetic, cut throat capitalists try to spin the investment in a bike company as good for the little guy. lol
Source: am one of those people.
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.
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.
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!
That’s amazing.
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.
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.
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.
www.pinkbike.com/news/atherton-bikes-seeking-around-600000-in-crowd-funding-investment.html
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.
I mean... apart from the fact they’re evil...
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
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.
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.
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.