Bain Spins To Canada For Ski-Doo Deal –

Just in time for Labor Day weekend, Bain Capital agreed to buy Bombardier’s Recreational Products Business, maker of Sea-Doo watercrafts and Ski-Doo and Lynx snowmobiles, among other leisure products. The Boston-based firm teamed up with members of the Bombardier family and the Caisse de Depot et Placement du Quebec pension fund (CDP Capital) to do the deal, which will cost the buying group roughly $863 million (C$1.225 billion). The transaction is not expected to close until mid-fall.

Other than jet skis and snowmobiles, The Bombardier Recreational Products division makes Johnson and Evinrude outboard engines, Bombardier ATVs and Rotax engines and karts. The unit earned C$172 million last year, before taxes, on revenue of C$2.5 billion.

The sale price was roughly at-or-below analyst expectations for the business, which some thought had a value of as much as C$1.475 billion. There is expected to be additional price adjustments before the deal is closed, which could bring the final price down to the C$1.1 billion range, valuing the company at roughly 6.4 times trailing EBITDA, as estimated by TD Newcrest in a note to clients.

The deal, coming amid a C$2 billion restructuring program at Bombardier, is not the first for Bain in the recreational sports market. Last year it invested in German outdoor equipment specialist Jack Wolfskin, and in the 1980s provided venture capital to The Sports Authority. In 2002, Bain also had worked out a deal to buy Hayward Industries’ pool business for $570 million, but that transaction eventually sank before the papers were signed.

Through the transaction, Bain will achieve a 50% holding in the former Bombardier unit, with the Bombardier family maintaining a 35% stake and CDP Capital holding onto a 15% share.

Although the financing of the transaction has not been finalized, published reports have estimated that the buying group will look to leverage the transaction with a debt component in the 70% range. Merrill Lynch Canada helped advise the consortium on the transaction. News reports said UBS Securities Canada, Bank of Montreal and Royal Bank of Canada are among those competing to finance the deal and it detailed that an C$800 million debt component will likely be split between a term loan and a high yield.

There has also been some speculation in the Canadian press that the sale will be the forerunner to an eventual IPO for the popular maker of Ski-Doo’s.

Family Ties

While Bain Capital teamed up with the Bombardier family for the transaction, the pairing did not necessarily lead to any concessions on price from the Bombardier family. Some in the press have speculated that despite the family ties, the buying group had to bid as much as several hundred million dollars (Canadian) above the nearest competing offer in order to walk away with the prize. And it has been well documented that several interested parties, including Kohlberg Kravis Roberts & Co. and Teachers’ Merchant Bank, Texas Pacific Group, Onex Corp. and Blackstone Group, all exited the auction at an early stage in the process.

Still, one source close to the bidding noted, “Our view was that the projections were very optimistic. They were forecasting 10% top-line and 20% bottom-line growth [for the business], and if you believed those, you could have paid more than C$2 billion. And the unit’s past performance gives no reason to suggest those numbers.”

“If you look at the projections and the eventual purchase price, it suggests that once the buying group got in there they tore the projections apart… We had a sense the deck was stacked in favor of the family, and decided that the percentages weren’t there for us to spend the time or the money,” the source said.

However, regarding the purchase price paid by the buying group, the source does not believe it was inordinately high. “It didn’t strike me as being crazy. When everybody went into the auction [the unit] was at a much higher price, but this group probably just brought it down less than everybody else.”