Wednesday, May 25, 2011

SRAM Goes Public

On April 29, 2011 a new company, SRAM International Corporation, was incorporated for the purpose of becoming a holding company with a 100 percent ownership interest in SRAM, LLC.  SRAM is the owner of RockShox, Avid, Truvativ, Zipp, and Quarq power meters.  Reuters (and many other sites) has reported that SRAM International has filed with regulators to potentially raise $300 million with an initial public offering (IPO) of common stock.  SRAM International plans trade to under the "SRAM" symbol, but it has not yet been determined which market to trade on, NASDAQ or NYSE. The number of shares that are planned to be released nor the expected value of the shares was released.  J.P. Morgan, BofA Merrill Lynch, and Morgan Stanley are the lead underwriters on the deal.

Reasons to Go Public

According to Bicycle Retailer, the purpose of the offering is to repay debt to Trilantic Partners. Trilantic (formerly known as Lehman Brothers Merchant Bank, the buyout arm of Lehman Brothers) invested $234.8 million in SRAM in September 2008 plus a 10 percent annual preferred return.

SRAM Stats

Recent documents filed with the SEC provide a few interesting facts about the world’s number two bike component maker:
  • From 2006 to 2010, SRAM grew revenues about 17% per year to more than half a billion dollars in 2010.
  • The company improved operating margins from 8% to 19% which points to increasing profit margins.
  • Net earnings (profit) in 2010 were $50 million.
  • Aftermarket sales are increasing and the company credits improved marketing
  • About two-thirds of company sales originate from the OEM segment with the remainder in the aftermarket.
  • The company estimates it holds about 15 percent market share in the $3.5 billion bicycle component market.
  • SRAM holds 550 patents.

Experts Say

According to some financial analysts, SRAM’s pending IPO could benefit from the current positive state of the capital markets.
“Timing is everything in the M&A business and the financial business,” said Laurence Levi, president of VO2 Partners, an investment firm focused on the specialty sports equipment sector. “A year ago, the market for IPOs was pretty anemic; today it’s pretty hot. A bunch of IPOs becoming active, specifically in the lifestyle market.”
Claude Proulx, an analyst with BMO Capital Markets, had this to say: “The stock market has done quite well in the last 12 months and the S&P 500 is not far from its all time high.”

In or Out?

Well that's it - time to empty out the kids' college funds and dump them into the bicycle market.  This way, I can validate my component upgrades as spending on SRAM parts will ensure my kids get the best education money can buy.

1 comment:

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