Major Private Equity Firms Considering Buying Canyon Bicycles - Sale Could Bring in $592 Million

Oct 21, 2020 at 13:22
by Mike Kazimer  
Inside Canyon

Canyon's search for new investors has attracted takeover interest from private equity firms Carlyle Group and KKR & Co, along with buyout firms Advent International, Apax Partners, General Atlantic and Permira, according to Bloomberg.

KKR & Co recently led a $450 million investment into Zwift, and all of the parties interested in Canyon appear intent on capitalizing on the recent surge of interest in cycling and other outdoor activities. The sale is expected to bring in up to 500 million euros ($592 million) for the company.

Canyon reported a 30% growth of global sales in 2020, which were expected to total 400 million euros ($474 million). When those numbers were announced, Roman Arnold, one of the company's founders and the former CEO, said, "We have reached a scale at which we need additional investors for our growth and innovation plans." The company's growth over the last 5 years was helped by TSG Consumer Partners LLC, who bought a significant minority stake in Canyon in 2016.


184 Comments

  • 216 1
 I am looking forward to what maximizing shareholder value means for bikes /s
  • 64 8
 don't canyon bikes already have known durability issues?
  • 42 46
flag fullendurbro (Oct 21, 2020 at 14:15) (Below Threshold)
 You should be looking forward to the benefits that a massive influx of cash could do for Canyon.
  • 236 2
 They will trademark the term Canyon then turn around and sue the National Park Service.
  • 21 1
 @rustiegrizwold: that would be pretty on-brand for 2020
  • 59 2
 *Walmart to stock Canyon Bikes in 2021*
  • 110 4
 @fullendurbro: it usually means the founders get rich and lose interest, private equity takes over and decides which cost cutting measures can raise the Ebita enough to refinance the company for more than what they paid.
  • 11 0
 I can't wait for the Canyon IPO pump n' dump...11 to 33...back to 5...ah shit I'll day trade it.
  • 13 6
 @mark4444: that’s capitalism baby
  • 18 0
 KKR is going to buy into a company is upward potential based on the 30% growth in 2020. I hope they have someone on staff that understands the bike industry. If the industry overloads the the market with current demand quantities it will be selling off bikes at a heavy discount in 2022 to get the excess inventor out of the door.
  • 42 0
 @vjunior21: I'm waiting for 2023 when I can get a bike for hella cheap because sales are down 93%.
  • 4 0
 The Leader is Good, The Leader is Great, we surrender our Will, as of this Date.
  • 7 0
 @chezotron:
Yeah the problem with a lot of things like bikes is that they are not consumed at a rapid pace like say pizza. Once you load up the industry with inventory you can sell because people that don't normally ride already have a bike. The other side of that is some may sell their bikes on the secondary market and not replace them. Both are potentially bad scenarios for industry forecasters. You either miss the market demand or over produce.

Most of the industry uses lines of credit, like other manufacturing industries, so they have a timeline to move finished product. It is going to be tricky to not end up with to much inventory for to long.
  • 13 1
 @mark4444: besides leaving out the D in EBITDA, spot on. Get ready for Canyon to completely sh!t the bed in 2 to 3 years.
  • 1 0
 @vjunior21: KKR is usually very smart firm and I bet they know this very well. However, like a lot of good PE shops, they have a ton of a capital to deploy.

Wouldn't be surprised to hear more of this... There is a lot of capital in PE right now and they need to buy stuff.
  • 10 0
 Hopefully someone in the buy-out may be able to fix their geo and sizing.
  • 3 0
 @vjunior21: Why do you think so many companies like GT, Cannondale, etc... end up in investment firms? They didn't project correctly. I don't see how this could be any different.
  • 3 0
 @mark4444:
You can say that again.
coughfive-10cough
  • 15 0
 @kleinblake: Quite often, such actions are intended to boost short term investment returns, but ultimately harm the company, reduce productivity and reduce the average standard of living. It is capitalism, but its inept, short-sighted capitalism.
  • 12 0
 @mark4444: @rjrx: Can confirm this is a thing, been thru pump n' dump 4 times in my career. Funny thing is, I've also seen product technology come full circle. We're told to remove "features" as a cost cutting measure. 2 years later we still haven't seen the return on the cut, then the company decides the customers miss it, it was a terrible idea and it's brilliant to reintroduce it as a selling point. Then we lose money on the old "cost cut" products that we have to support and keep in stock for service and warranty issues. Always "comment out" changes in your code. They will return!
  • 3 1
 Correct me if I am wrong,but Canyon doesn't have a e-bike line, right?
I guess that money will help with that,but I agree that more Often than not,capital injections like this are the beginning of the end.
  • 5 1
 I am looking forward to the end of Canyon...just like every other bike brand bought by an investment firm.* Whoever said K-Mart is correct; maybe they'll end up at Dick's...seems appropriate.



*I'm actually not looking forward to the end of Canyon.
  • 1 6
flag pbfan08 (Oct 22, 2020 at 6:42) (Below Threshold)
 @rjrx: Ah yes the age old Private Equity IPO... Do you even know what the words used above mean?
  • 2 1
 @pbfan08: no one here but you said the words “Private Equity IPO”.
  • 4 2
 @Ttimer: short sighted for whom? The people who are trying to cash in will likely cash in and the workers and customers will get screwed. That’s capitalism baby
  • 3 1
 @kleinblake: how does the customer get screwed when they over-forecast 2022 sales and are forced to slash prices to liquidate capital tied in inventory?
  • 1 0
 @Hayek: Why don't you read the comment I responded too, in the context of the article.
  • 5 0
 @Hayek: when cost cutting measures deliver a lower quality bike and/or awful warranty experience
  • 2 2
 @kleinblake: and consumers elect to buy a superior product from another producer...
  • 2 1
 @pbfan08: I believe it was about looking forward to day trading Canyon stock after PE pumps up its valuation for IPO and it’s share price unsurprisingly plummets afterwards.
  • 1 4
 @Hayek: You do realize that Private Equity and Publicly traded companies(which IPO implies) are literally opposites. There will be no "IPO for Canyon" as it's being gobbled up by a Private Equity firm because of the insane growth they experienced this year.... Yikes, your just as clueless as the person I was responding too, take some finance classes.
  • 6 2
 @pbfan08: Everyone commenting on this article has at least two degrees of overlap: a more-than-passive interest in the cycling industry, and a more-than-passive interest in capital markets. I’m afraid you might be the exception. Everyone here knows the difference between a private and traded company, so thank you for your 6th-grade explanation of how capital markets work. Back to the point of point of the comment by @rjrx (maybe you can chime in and clarify). We’re talking about day trading a losing stock that was pumped up by PE for IPO. Most people know that PE is not looking to manage an organization. They are looking to exit. After a $500m round, it would not be unusual for the exit to be IPO. I’m sure this is was @rjrx is talking about, and it sounds like they may even know something about finance. As for your suggestion about taking Finance classes. You don’t know anything about me, except for my username. I don’t know anything about you. Maybe I’ve taken more finance courses than you, who knows?
  • 2 0
 @adrennan: I haven't heard a lot about the durability but I know that servicing them can be a pain in the ass depending on the bike. At the old shop I worked out, we were about a 20-30 min drive from a giant Canyon showroom that had a full mechanic shop on hand. But getting parts for bike was a super big hassle and for whatever stupid reason, getting in stock product over to us took an exorbitant amount of time. Not to mention they flat refused to work on customers bikes there despite having said full shop, as it was "only to service demo bikes".

All in all my opinion is that while they make quality product, they are kind of elitists or at the very least, unnecessarily difficult to work with.
  • 3 0
 @mark4444: keep those kpi‘s coming...cut costs by cheaper labourers, putting a stop watch next to the bike builder, reduce time in quality control, reduce costs in training, let new product managers go wild in desastrous component mixing (aka Specialized) ,..., and see how soon they can shave off some fresh brewed millions. When the cow has been milked to death, sell the company to the next breed of locusts...let‘s see how this story ends in the future...
  • 2 0
 @nozes: they have the Canyon:On line of ebikes.
  • 1 0
 Exactly man! Such a freakin bummer! @Pilsner-power:
  • 73 6
 'We have reached a scale at which we need additional investors for our growth and innovation plans' Reading between the lines I always interpret these kind of comments as we're raking in revenue but are too shortsighted to put it back into the business so instead we'll dilute current shareholders and go outside for capital and lose control of the business.
  • 23 0
 It could mean they don't generate enough free cash flow to fully capitalize on the opportunities in front of them (ie going from world's largest DTC bike company to overall largest). Public markets are the other option, but a lot of governance downsides/distractions.
  • 52 2
 It could also mean "after working our asses off for X number years some company just dumped a boat load of money at our doors and now we can ease off the gas a bit, enjoy the prime years of our families lives and ride bikes for fun".
  • 15 6
 @lastminutetech: nah, they just need marketing money to pay off GMBN the biased reviews of the brand.
  • 1 2
 @lastminutetech: freen market dream:supply the demand for a need or service and hopefully generate wealth.
  • 1 0
 They put it all back into MVP...Smile
  • 6 0
 The search for a new investor is most likely because TSG had a 5 year investment window. They've made their cash and now its time to get out and pass the baton to a bigger PE. This happens all the time and Canyon wouldnt have had too much say on the issue.
  • 61 5
 Just seems like the board and any significant stakeholders understand that this is the best time to cash out. Sales are going to plummet post covid and the company will never be valued this highly again.
  • 26 7
 Interesting that you consider potential investors don’t have your special insight into the future demise of company sales, you should call and let them know how silly they are and now they overlooked Covid..... riiiiiight.

Sure, this year has been strange and likely created abnormal levels of growth but cycling is growing, especially outside the PB world and as a whole the industry was one of the few to profit this year.
  • 14 2
 @justanotherusername: They don't care about the long term prospects. They will leverage the heck out of the company with as much borrowing as possible, pay the private equity firms well, and leave the creditors to sort it out in a bankruptcy/restructuring in 4 years. PE sees acquisition targets as mules to carry debt, not long term investments. Just watch. When Canyon can barely afford to service their debt payments no one will envy them.
  • 14 1
 @justanotherusername: Our bike shops in the states were nearly empty 2 months ago. I'm even talking about the large, non-bike company (Trek Store, Giant, etc.) bike shops. We have a bi LBS that carries Trek, Specialized, Santa Cruz and a few fat bike companies, floor was empty. Lots of high end bikes bought by brand new riders. I remember a bike boom back in the late 80's early 90's. Just from my experience, only about 10% stayed in cycling after 1994 or so. I have a feeling in about 2 seasons, the bike shops will have overstock and the secondary market will be flooded with like new bikes. Nice, almost new bikes. It's gonna be tough.
  • 4 0
 @oldschool43: some bike shops over here can't get new stock until June 2022... People can't spend money on overseas holidays so bike sales have been going through the roof
  • 3 0
 @oldschool43: Yeah I echo that sentiment. I'll also add that they new riders will be joining during a time when the trails are the busiest they've ever been. Infrastructure for mtb at least in my country has not been able to keep up with demand.
  • 3 0
 TSG is a PE and already in there. Folks, find me something without some PE backing and we can have a conversation.
  • 2 0
 @justanotherusername: What gillyske said is almost a certainty. The investors will know this, too.
Which should raise all kinds of red flags as to what their plans are for the company.
Are you convinced that they are interested in mid- or long-term growth when buying a company at the height of its growth rate, which will never reach such a growth rate again?
  • 1 0
 @oldschool43: I agree, but I don’t know that it will be quite as dramatic as last time. Early 90’s was still fairly early adoption of the sport. And although trail infrastructure isn’t where it should be, it’s so far beyond where it was three decades ago, I think a much larger share of new riders will stick around this time around.
  • 59 15
 The oligarchs reshuffle their portfolios yet again.
  • 17 62
flag pistol2ne (Oct 21, 2020 at 14:03) (Below Threshold)
 I think you're on the wrong forum bro. R/Politics is the other way.
  • 14 2
 @pistol2ne: oligarchy does not Necessarily include politics:

Oligarch, a member of an oligarchy, a power structure where control resides in a small number of people

Oligarch (Kingdom of Hungary), late 13th–14th centuries

Business oligarch, businessmen who quickly acquired huge wealth in post-Soviet states
Russian oligarch, business oligarchs in the era of Russian privatization in the 1990s
Ukrainian oligarchs, business oligarchs after Ukrainian independence in 1991
  • 5 13
flag pistol2ne (Oct 22, 2020 at 6:40) (Below Threshold)
 @vhdh666: I know what it is. It's also a hot word for socialist internet warriors/Bernie Bros here in the US. It cooled off since Bernie in 2016 though so surprised to see it back. I guess calling everyone racist or a white supremacist didn't work out.

www.vox.com/2016/5/9/11502464/gilens-page-oligarchy-study
  • 39 16
 This is a very positive marker for Canyon. You all should be congratulating them for the hypergrowth and ability to trigger interest from such major players in the PE space. You don't get capital from Carly or KKR if you aren't doing excessively well and have exceptionally good growth indicators.

This is the equivalent of your grandmother recognizing your talent for biking and handing you a $40,000 check to help you grow as a rider and racer. Only good can come out of this for Canyon.
  • 17 8
 Thanks to people like you on PB that know a thing or two about PE. Refreshing to see a few people (Tracefunction above) that appreciate the value this brings to Canyon and ultimately the sport if there's smart money chasing it.

KKR is smart. I'm excited to see how their involvement helps the business grow.
  • 6 3
 Excuse me but I was led to believe this was demons trying to kill the bike company? As you've mentioned, it's cool to see this interest, especially given the fact that it's known how inflated the mtb market has become due to covid, interest from KKR and Carly suggests there are more factors at play that are leading to the firms' belief in continued growth for the sport. Cool to be able to discuss these things on pb
  • 4 3
 Whether it was the PE group or the debt, it's all evil and doomed to kill poor Canyon and the consumer!
  • 46 2
 "This is the equivalent of your grandmother recognizing your talent for biking and handing you a $40,000 check to help you grow as a rider and racer."

I guess it's the equivalent of that scenario, if your grandma expects you to bring her a lot of money down the road, and a condition of you getting that money is that a large portion of the prize money you wins belongs to her.

I guess the point I'm making is, it's not the equivalent of that at all.
  • 1 0
 @harriieee: unless she is angling for the gold package in the retirement home and is hoping you'll help pay for it.
  • 15 0
 @mtb-sf: If she's giving me 40 grand to ride bikes, she can pay for her own damn retirement. Or else she's crazy
  • 28 2
 There are not many happy stories about PE buying a company and turning it into something better. It's 100% about growth and returns. At any cost. Including milking the company dry until it collapses.

They don't care about biking. They don't care about riders. They'll probably identify that cheap hardtails sell the largest volume and figure out how to manufacture them for less and get them in every Amazon and Walmart warehouse.
  • 1 1
 @harriieee: don't bite the hand that feeds haha
  • 4 4
 @agmin: Define "something better." KKR has a pretty good track record of helping companies grow and improve. Generally, you just don't hear about it because the success is attributed to the company and not the financial backers who remain in the background... Most bankers, don't want to run a business... they want to buy a good company with good management and give them the support and money to further capitalize on what has been built.
  • 1 0
 @dhx42: I think it all comes down to who is on the board. As I'm sure you well know KKR and Carlyle are both publicly traded, so the CEO is really at the behest of the board. When you see a company turn in a bad direction it is usually the board putting pressure to hit short term goals. If a PE firm is focused on growth and maybe a flip 5 years out then it probably means good things.
  • 1 1
 @friendlyfoe: Take it another step beyond, decision making is going to be even more influenced in these case-by-case issues like Canyon by the particular vehicle they're in. At our shop, we'll identify a deal we like and then find the right investors / fund to fit the profile... But that is a little backwards compared to how many operate. Once you get into a situation where your fund objectives or horizon are dictating terms of the business plan, it's easy to see how you end up in situations where outsiders think you're not doing the right thing for the deal.
  • 5 0
 Now if only we can get some of that sweet, sweet KKR/Carlyle/PE money into trail development.

Maybe they can support government lobbying to improve trail access and prevent trail closures, seeing as it's all relevant to the health of their marketplace/consumers.
  • 1 0
 I think market saturation will put a huge stop to this. Just like GoPro's value in 2015 when everybody had bought one and realized that their hometrail footage looks much lamer than rampage.
  • 1 2
 @harriieee: Sounds like a smart, business savvy grandmother to me! I would be happy to give her a portion of my winnings if she helped me get to a higher level. It's how the world works.
  • 4 1
 @agmin: 100% disagree. I'm passionate about PE work because most of the time we improve the companies in our portfolio. Yes, sometimes we discover financials or details post-deal that we didn't discover in diligence and have to do some nasty cost-cutting (i.e. work force reduction) but the vast majority of the time we help companies grow beyond the entrepreneur's wildest dreams by introducing management principles designed by the smartest people in the industry, or by handing them a large chunk of cash.

You're thinking of the hollywood PE. Two months ago I had a meeting with a former majority owner of a private, middle market company who started crying in our meeting because he was so proud to see how healthy his org was and how much it had grown despite his boys not wanting to take control of it. PE can ge a great thing.
  • 4 1
 I think we bump this thread in 3-4 years and check in after the dust settles. I don't have a crystal ball, but I think Canyon will be trashed after the covid cycling bump dies down and they're back to a more typical bicycle market condition. I could be wrong, but it's hard for me to imagine how a cycling company is going to provide the growth that a PE company would be looking for. It's a crowded, fickle, trendy market, and I think you really have to want to be in the cycling market to endure that.
  • 1 0
 Serious cycling has been around since the 1880s. Popularity has always been in waves. Bikes will always be niche today unless more people get out of their cars for basic transportation if they don't have good public transit networks. As far as recreational cycling, I don't see anything major different in my area as far as people on the roads cycling. It may be the same when the Lance Armstrong influence kicked in many years ago (at least for U.S.). True bikes are selling out, but at least for bike shops, there are only so many bikes that can be stored, so if the suppliers are on Covid lockdown, it will appear like there is a boom and bust cycle as Covid does its thing. Once gyms open up, and people flock to them, only the hardcore people will stick with cycling. And that will always be niche. But if they all buy a bike, that is good for the industry.
  • 24 1
 If this goes through they can buy some vowels for the Collective and finish the bottom of their Canyon logo.
  • 19 2
 Someone out there is about to generate so much value for their shareholders...
  • 6 13
flag fullendurbro (Oct 21, 2020 at 14:16) (Below Threshold)
 You ever thought about how much Canyon could benefit from an influx of cash?
  • 9 11
 @fullendurbro: Not worth it with this crowd apparently, just a bunch of goons who read PE and think investors=evil
  • 6 9
 @Tracefunction: Haha, so true. Same crowd that bitches about having to pay $1.50/month for TrailForks. I guess every corporation should be able to offer a free product without any outside investment or revenue.
  • 7 0
 @fullendurbro: Don't they get an influx of cash from selling 30% more bikes? Serious Q. It seems like the influx of cash is there already. But I guess with so much government injected liquidity these days, someone was bound to start spending it on bikes.
  • 7 0
 @fullendurbro: And they just get the money for free? Let's be real, Carlyle and KKR are investing because they think they'll be able to drive costs down and increase growth. Great for shareholders, no so great for the consumers who get a lower quality product and employees who get laid off in the process.
  • 9 0
 How in the high hell aren't the pros getting bigger purses for winning competitions with these kind of dealings? I realize we aren't talking golf here, but I think a bit more love would be appreciated to the guys and gals that best promote your rides-by riding them. I realize riding ain't about the benjamins entirely, but it's obviously a huge factor to consider when it's your livelyhood.
  • 4 0
 Well, roadies get the largest share of the pie/ purse for one. And their pro reps are appalling at brokering better deals- just watch how many teams fold this year to get an idea of how tenuous their position is. They don't even get a high chair at the table. So with mtb further down the food chain, what do you expect?
  • 1 0
 @SmashySmashy: road sales are far greater revenue then mtb, Sagan sells bikes & gear at a level spesh are happy to pay him his bonus no mtb rider has that presence and media exposure
  • 3 1
 @enduroFactory: that's not true...the road bike market isn't as big as people on pb always say. I've seen the market research. The sport is just more present because of the Grand Tours and all the money and advertising that goes with it.
  • 2 0
 Because they don’t have to pay them more. Simple.
  • 1 0
 @jzPV: "The sport is just more present because of the Grand Tours and all the money and advertising that goes with it." Which would imply higher salaries and prize money?
@enduroFactory : Sagan rides for a team, who in turn are sponsored by Specialized (among other brands). So Specialized don't pay him anything directly. My point was more about those teams being treated by race organizers and cycling bodies. They are 100% dependent on their sponsors for survival, they get no share of the TV revenue from the sport. The entire prize fund for a Grand Tour wouldn't cover 20% of the budget required to run a WorldTour team. They have no security, and little to offer potential sponsors if they aren't competing at the highest level. They're always hit hard when economic conditions change and nothing has changed in the last 15 years to address that.
If the most influential bodies that represent riders can't organize and negotiate better conditions, then how can individuals in an even more precarious position be expected to?
  • 2 0
 I mean didn't Canyon just expand the number of pro mountain bike riders they were supporting this year by a huge amount? That direct support is better than just prize purses.
  • 2 0
 Because they all hide their salaries. Put it all out in the open and everyone will get paid more.
  • 2 0
 I read it on the internet that They may not pay him directly but i think they pay him his €4milion. Plus supply 200 frames and support. Story Was on cycling tips. So slightly more trustworthy than Pinkbikes comments section @SmashySmashy:
  • 3 0
 @SmashySmashy: Sagan and specialized have a contract. He brought them to Bora from Saco/Tinkoff. He's a big enough player for that kind of gig.
  • 1 0
 @sspiff: @gcrider: Just my luck Sagan would be an exception, rather than the rule.
  • 15 7
 www.penews.com/articles/carlyle-group-co-ceo-responds-to-predatory-practices-tweet-from-ocasio-cortez-20191121

"Senator Elizabeth Warren [...] has compared buyout firms to vampires, saying they bleed companies dry and "walk away enriched"."
  • 12 19
flag SmashySmashy (Oct 21, 2020 at 14:36) (Below Threshold)
 @zoobab2: It's funny whenever Elizabeth Warren talks about blood considering how badly her foray into that subject went when she lauded her own. Maybe we'd all be better off if she opened up similarly about her and her husbands's ability to bleed companies dry and "walk away enriched" so that we could all benefit from their teachings and not just the vulture funds..
  • 6 0
 The US Congress has never seen a problem that they cannot make worse. Remove all access to the US banking system from small companies and force them to take money from VC and IB and then complain about the outcome of the laws that you wrote and passed. Beautiful. There is no practical funding methods left to emerging companies outside of Venture Capital and Investment Banks.
  • 2 4
 @healthcare1: Well said.
Also, either PBers have bandied together to downvote politically sensitive comments (which would be awesome!) or something altogether more hinkey and nefarious is afoot...
  • 6 0
 Similar to how Warren flipped foreclosed homes to enrich herself.
  • 4 0
 I don't think much of Warren, but there's a great article by Matt Taibbi from 2012, about what Bain Capital did to the businesses it bought out in the 80s and 90s. It's probably one of my all-time faves:

www.rollingstone.com/politics/politics-news/greed-and-debt-the-true-story-of-mitt-romney-and-bain-capital-183291
  • 9 8
 I have reservations regarding Elizabeth Warren and her comments. Native
  • 6 3
 @Dropthedebt: This comment has only gotten 1/64 to 1/1024 of the upvotes it deserves.
  • 28 17
 Private equity = suck cash out and sell off shell, nice knowin' ya Canyon.
  • 18 10
 That isn't true at all and something only someone with no knowledge of finance would say. Considering the firm that buys will almost surely be a financial purchaser and not a strategic purchaser they want to make sure Canyon can generate enough cash flows to service debt and periodically refinance if it's an LBO or if it's some other sort of purchase they would still want to maximize the value of equity compared to debt which would mean maximizing future income streams based on the aggregate value of operating assets as a going concern. smh
  • 9 5
 @Tracefunction: exactly. work in the industry can confirm.
  • 11 4
 @Tracefunction: LBO by definition loads the company with debt thereby forcing "efficiencies". We see private equity transactions all the time in my industry and they are almost always negative. Reduce costs, pile on debt and push it off to the next buyer who rinses and repeats.
  • 19 2
 Former PE associate. It's actually the opposite. PE firms buy mismanaged companies, and turn them around through any number of avenues, but it almost always results in better outcomes for the end consumer. Carlyle in particular has a reputation for hands-off management. Not to mention, Canyon already is owned by a PE group - TSG. In this case, it would be TSG selling because Canyon has outgrown their middle market specialty so they're selling to another PE firm that specializes in managing companies with a higher market cap.
  • 7 2
 @salespunk: I'm not saying it's always positive, I was just pushing back on the idea that PE acquisition somehow automatically means the acquiring firm sucks cash out of the target and then moves on. Industry practices vary but there are many instances where the acquiring firm won't undertake an LBO unless they model sufficient cashflows to service long term debt without changing the operating model at all, esp when it's a company where revenue grew 30% year on year, it means the PE firm can basically do nothing in terms of streamlining (the part everyone thinks is evil) and still gain decent upside.
  • 3 4
 Exactly canyon will be loaded with the debt of the purchase and left to founder whilst the investors walk away with the cash
  • 4 2
 @CM999: What you said makes no sense. The 'founder' as you put it doesn't take on any debt when they get bought out in an LBO, the PE firm takes on the debt against the assets of the target and then usually repays the lender right back by issuing corporate bonds to institutional investors. And as fullenduro has already pointed out, Canyon is already owned by a PE firm, they are just moving up in terms of market cap, so what you said makes negative sense.
  • 6 0
 @fullendurbro:

It completely depends on the entity. I was involved with a company bought by Internet Brands, which is owned and directed by KKR. Lots of debt for my former company and 20% squeeze within 2 months. Within 6 months, another round of layoffs. The company is a waste land now, with profits based on short term needs so that they can position it for sale again in the next year or two. It matters not for the consumer if prices are lower if the people and the culture from which the brand was made is destroyed. Not saying Canyon should take on more PE investments, I just hope they pick a firm based on fit and not just the payout. Also, PE is all about investment optimization and profit, so what they say at the time of the deal means nothing a year later if they need the investment to perform better because other investments are performing poorly. They will do what they need to do to meet there own investor and lending bank expectations.

It’s working for them now and other bike brands, but I would stay the hell away from KKR.
  • 4 1
 @Bliss503: You are right. Gutting middle management is often a first move post-acquisition if the company that was acquired has a lot of debt (like you mentioned yours did). Canyon has very little debt comparatively speaking, so I don't think that would be a priority for them. They would likely focus on cost saving on the manufacturing end and revenue introduction (at least that's what I would do).

I do find it interesting that these groups would be interested in buying after a period of hyper growth as revenue will likely settle over the next 12-18 months, but I assume they are privy to details I am not.
  • 3 0
 @Tracefunction: Definition of "Founder:"

(of a ship) fill with water and sink.
"six drowned when the yacht foundered off the Florida coast"

(of a plan or undertaking) fail or break down, typically as a result of a particular problem or setback.
"the talks foundered on the issue of reform"
  • 2 0
 @fullendurbro: Mentioned this above but KKR has a ton of cash to deploy and has been extremely active in the past few months... Even pre-covid they made some solid buys that were definitely at the upper end of the price ranges to secure the deal.
  • 3 1
 @dhx42:

That is not how KKR works - the cash secures the loans that Canyon is responsible to pay off. KKR is not going to drop a half billion liquid on a bike company. Remember the burden they and their partner PE’s put on Toys R Us - it ended up bankrupting the company. KKR did not become what they are by playing nice. They are ONLY interested in returns and can care less about growing a company for the long term.

Like I said, Canyon needs to pick the right partner - KKR does not play the partner game.

And fullendurbro - they did not just go after mid or upper management, they went after tank and file in far larger numbers. The management team I was part of was the last hit.
  • 1 0
 @Bliss503: I didn't mean a full cash purchase. Was more speaking that they have raised a lot of capital which they will use as part of a transaction. Right now, they probably get 5-7 turns on company of Canyon's size. They've raised a lot of money in their recent funds and those people/groups that contributed to those funds want to see their capital deployed so their is pressure on the KKR team to deploy those resources.

This is true for a lot of PE firms right now. There is a lot of cash that firms have raised and their investors want to see that money go to work. Consequently, we will probably see some higher prices.
  • 9 1
 Is this in any way going to help their warranty department get back to you in under 2 months?
  • 3 0
 Hopefully. Filed a warranty claim in April, got an email in August to say they are overloaded and to not contact them in the meantime, and then had my claim accepted in September.
  • 4 0
 Private equity firms are hit or miss. If you find a good one that genuinely cares about the business, then things can flourish. If not and they're only in it for themselves, you can kiss your company goodbye in a very short. Of time as they shall it out for their own benefit maximize their own profits only to move on and do the same thing to other companies.
  • 6 4
 It's pretty rare that a PE firm will close up a shop post-investment. My former employer would often oust founders and middle management because entrepreneurs for the most part are terrible CEOs. Their skillset is just entirely different. But by and large, if a PE group has to shut down an acquisition post-deal, they did a horrible job with their due diligence and they don't last long if they do that with more than 2% of their deals.
  • 4 1
 I've seen a lot of this in the non-bike industry where I am employed. I'd say 75%+ of the time a deal like this means that the buyer slashes staff and lowers costs to maximize profits so that the asset can go public or be combined with another asset and sold a few years later. These private equity folks need cash flow to buy more assets and you don't get cash flow investing even more money in human resources and production.
  • 10 6
 I wonder if the people who complain about companies making money for shareholders are also the same people who complain when their retirement funds underperform so they cant retire earlier to go ride bikes...
  • 4 0
 Carlyle Group dismantles companies and sells off what it can for profit with no regard for the employees from said companies. They are good at making money for themselves and little else. Best of luck Canyon!
  • 1 0
 You don't buy a company at the height of its growth where you'd naturally pay a premium then sell it for scraps, where you'd sell for pennies on the dollar. Absolutely no company has actual INTENTION of doing that unless the company is in the dumps already, and they have a fire sale, where this strategy can actually produce profit. A strong brand and company like Canyon is not in that situation, nor are these firms.

Everyone on PB just thinks they know how "big business" operates and it's all doom and gloom for little ol' us as the consumer..
  • 1 0
 @Kyleponga: I’m not talking about “big business.” I’m talking about the Carlyle Group
  • 5 1
 Main companys failure, is the "we want grow philosophy" ..... The dumbasses have to be Humble and build better things. Not WE have to grow more then 20% or what per year..... Thats gonna end Wiese for all
  • 1 0
 The sad thing is that bikes are already good enough. It is all about the money at this point.
  • 3 0
 Sad for the staff. Whatever way you swing it, this was a company that wasn’t driven only but economics. Despite their recent production line they seemed to genuinely once upon a time care about bikes, riders and the sport. Now? Will be economical reasoning above all else.

A fundamental contradiction of purpose, values and mission. So while they may grow, it’s the culture that gets fecked.
  • 4 0
 Makes sense. Imagine Yeti will find itself with new ownership soon enough given it seems they tested the waters with Jefferies last year.
  • 14 0
 Yas! The Tribe! Oh, wait....
  • 8 0
 @Tearsforgears: The Dental Convention!
  • 3 1
 I still have access to WSJ Pro so I took a peak at the few indicators I could find for Yeti. Not a super attractive buy for most companies.
  • 1 0
 @fullendurbro: What makes you say that? Curious.
  • 2 0
 WTF. Yeti was already destroyed once by being acquired. The company we see today had to be resurrected from the trash bin.
  • 1 0
 @Nkautzman69: Still in the trash bin*
  • 3 1
 Impressive list of top shelf PE firms. The DTC business model and potential scalability has to be a primary valuation driver. The likely strategy would be to leverage the brand by expanding the product line to cover a wide range of consumers, and rationalizing/optimizing the supply chain. Personal experience with Permira was actually quite good; relatively hands-off with legacy management and a pretty stunning return on exit.
  • 3 0
 I'm sure this means more value to the consumer, better parts kits, more sizing, better business infrastructure. Suuuure. Because the customer always wins when PE gets involved.
  • 4 1
 Isn't this pretty much the path Mavic marched down to its near death? Success, PE buyout, and then trying to pick up the pieces.
  • 5 0
 Infectious, over-hyped Capitalism will sadly destroy Canyon
  • 1 0
 As noted by others we all know what happens when good bike brands get bought by venture capital. Hello Walmart, ad goodbye any riders that give a care about the quality of the bike they are riding. But hey $500 mil is not chump change, I would cash out (sorry).
  • 1 0
 Just buy a better bike.
  • 3 0
 are any of these companies in bike industry currently? or is it like doral buying cdale??
  • 4 3
 PE groups don't necessarily specialize in "industries" like cycling. In this case, they would likely view Canyon as a manufacturing company, and both Carlyle and KKR are large enough to have groups within their org structures that specialize in manufacturing.

Quick look through Carlyle's portfolio using WSJ Pro and you'll see that its holdings vary from a minority stake in Lyft, to majority stakes in physician staffing companies and middle market manufacturers. Carlyle has dozens of VPs for the manufacturing space on LinkedIn, so safe to say they are well equipped to help guide Canyon to a profitable future.
  • 2 0
 @fullendurbro: Does canyon manufacture their own frames or do they outsource that (like most of the other brands)?
  • 4 0
 Canyon factory retail stores coming soon if this happens
  • 4 0
 It's all Jack and Troy's fault. Slow down boys...
  • 1 0
 What are they getting paid? And Fabian Barrel too obviously.
  • 3 0
 Hope it doesn't end the way that the Pegasus group and Cannondale fiasco did.
  • 3 0
 Acquisition based on anomalous growth due to pandemic. I'm not a wallstreet guy, but that seems dumb as shit.
  • 1 1
 Except for a whack of entertaining PB comments on converging frame designs I haven't kept up with how the SC takover is working out. Although the Bronson test rig I tried did look like the Nomad it seemed like the best version so far. Maximizing shareholder value? Maybe but capitalism works- the market will decide if this is a good move.
  • 1 0
 "KKR in $3.1 billion deal to buy Commonwealth Bank's CFS" wealth management arm.

www.afr.com/street-talk/kkr-set-to-buy-a-majority-stake-in-cfs-20200512-p54s1u


Talk about diversification of investment.
  • 3 0
 Hopefully the bike industry doesn't go the same way as skiing...
  • 2 0
 It’s going to be just like car and motorcycle dealerships soon
  • 3 0
 Coming to Amazon prime soon, Canyon Bikes starting at $199.00
  • 1 0
 Great time to sell it. I was just in 2 shops in my home town and they were saying if you order a bike now, you might get it by August. Crazy!
  • 2 0
 For what equity? Interesting to see what the total valuation of canyon would be.
  • 4 0
 E bikes for dayyys
  • 5 1
 Good bye cannon quality
  • 4 1
 If this happens - goodbye Canyon
  • 2 0
 Canyon’s next new bike model should be a “Pump (and Dump) Track Bike”
  • 2 0
 Once they make their investment, Canyon will no longer answer calls or reply to emails, just standard practice.
  • 2 0
 Good luck Canyon and your employees!

Private equity firms love to streamline (organisational efficiencies), slash and flip.
  • 1 0
 "The company's growth over the last 5 years was helped by TSG Consumer Partners LLC"

Is this TSG anything to do with the protection brand?
  • 1 0
 Well, that's the end of Canyon . It will be profit first and quality second from here on out . Ciao Canyon , it been nice knowing you.
  • 4 2
 I couldn't even afford 400 million pesos...
  • 1 1
 30% in 2020 isn't actually all that stellar given the state of the market. I guess it does depend on when their FY ends though.
  • 2 0
 Expecting to see more expensive products with lower grade components.
  • 2 0
 Good luck with KKR. My company was owned by them for 5 years. Hard times.
  • 1 0
 Did you get free lunches and beer?
  • 2 0
 Canyon better hope the investors don't read all these comments.
  • 2 0
 its a company from china
  • 1 1
 Fuck PE More damage by guys in tailor made suits and hermes ties than by a nuclear bomb
  • 1 0
 Looks like Canyon will become stationary ZWIFT bikes! Makes total sense!
  • 1 1
 maybe its not all about bikes?
bike bummers
  • 1 1
 From riders, for the riders...
  • 1 1
 Everyone on PB must've gotten an MBA from Wharton apparently...
  • 1 1
 i like turtles! and so does canyon warranty department.
  • 1 0
 Bad news.
  • 1 1
 Canyonized
  • 1 1
 Oh good
  • 1 1
 Riders get the BIG "D"

Post a Comment



You must login to Pinkbike.
Don't have an account? Sign up

Join Pinkbike  Login
Copyright © 2000 - 2020. Pinkbike.com. All rights reserved.
dv56 0.020801
Mobile Version of Website