Dorel buys U.S. bicycle maker in US $200M deal

Wed February 06 2008
Posted Feb 6, 2008
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Dorel Industries Ltd. (TSX:DII.B) is aiming to become the world's largest bicycle company after purchasing high-performance bike manufacturer Cannondale Bicycle Corp. in an all-cash transaction valued at US$190 million to $200 million. Cannondale, a maker of high-end bikes based in Bethel, Conn., had 2007 sales of about $200 million, including about 17 per cent from the Vancouver-based Sugoi Performance Apparel division which is part of the acquisition. Already the leading seller of mass-market bikes in North America and among the global leaders by unit sales, Dorel hopes to eventually position itself as the largest grossing bike company by harnessing the potential of the IBD (independent bicycle dealer) channel. "You don't shoot for No. 2, so we're going to shoot for No. 1," Dorel president and CEO Martin Schwartz said in an interview. "It could take some time but that's where we're going." The Montreal-based company says the acquisition will position it as the No. 3 IBD player in North America, behind Trek Bicycle Corp. and Specialized Bicycles. About 40 per cent of Cannondale's sales are in Europe, where Dorel hopes to expand the sales of its biking products. Dorel said Monday the final price depends on Cannondale's earnings for the year ending next June 30, but the debt-financed transaction "will be immediately accretive to Dorel's earnings." The purchase is expected to be immediately accretive and will increase earnings by nine cents per share on an annualized basis. Together with its existing US$300 million of sales, the biking segment will account for one quarter of Dorel's US$2 billion in annual sales. Dorel's new Cannondale Sports Group, which will include premium brands used by Olympic and Tour de France racers along with serious recreational riders, will be part of a new division focused on specialist bicycle shops. "It brings us products that have very highly recognized brands and in today's world if you really want to grow and protect yourself against for competitors, you've got to have a strong brand," said Schwartz. "We felt that by concentrating more on the high-brand products both in juvenile and the bike business, we will bring more value to our investors." Pacific Cycle, a leading U.S. bicycle company purchased by Dorel in 2004, will operate as a separate division concentrating on the mass merchant category with its Schwinn, Mongoose and Roadmaster brands. Cannondale will seek acquisitions of other performance bicycle manufacturers, accessories and garments companies, Dorel said. The division will be headed by Jeff Frehner, who was Pacific Cycle's president for three years. Jeffrey Schwartz, Dorel's chief financial officer, said Dorel's experience growing the juvenile segment, which markets the Cosco and Safety 1st brands as well as Eddie Bauer and Disney Baby licensed products, will set the example to growing the bike business into a world leader. "We're far from it today in bicycles but I think this is going to give us the platform to make a run at becoming the most important and best bicycle company," he said during a conference call. Jessy Hayem of Desjardins Securities said the Cannondale acquisition is positive and fits Dorel's strategy of positioning itself as a diversified consumer products company with solid brand names.