Nope, this isn’t April Fools, multi national conglomerate Textron is acquiring Arctic Cat. Check this for the full scoop.
Via the press release
“Today, Textron announced that it has reached a definitive agreement to acquire Arctic Cat Inc. (NASDAQ: ACAT) in a cash transaction valued at approximately $247 million, plus the assumption of existing debt. Arctic Cat is a leader in the recreational vehicle industry. The company manufactures and markets all-terrain vehicles (ATVs), side-by-sides and snowmobiles, in addition to related parts, garments and accessories under the Arctic Cat® and Motorfist® brand names.
“Arctic Cat is a superb strategic fit for Textron,” said Donnelly. “With our recent product introductions in the outdoor recreational vehicle market under the Stampede name, we believe Arctic Cat, one of the most recognized brands in the industry, provides an excellent platform to expand our portfolio, increase our distribution and create growth within our Specialized Vehicles business.”
Textron has agreed to make a cash tender offer for all outstanding shares of Arctic Cat common stock at a price of $18.50 per share. The tender offer is expected to commence no later than February 7, 2017. The completion of the acquisition is subject to customary conditions and regulatory approvals.”
Arctic Cat has long been the laggard when it comes to profitability. This is seen in their last earnings report in which they reported a loss of ($0.98)/share compared to street consensus of $0.35. (in Wall Street terms that is a “big miss”). Compare this to their competition, Ski-Doo (BRP) and Polaris (PII), both are fairly profitable and have guided decently-well. (Polaris beating “investor expectation” (also known as “consensus”), operating in the black (black=profitable), and BRP also operating in the black and beating consensus))
When looking to guidance (management’s expectations), Arctic Cat again looked like a dud, guiding to a loss for the full year of 17. While this may be acceptable for some up and coming tech company, where company growth is “the name of the game”, the UTV, SXS, sled world is fairly static, growing marginally, but not growing like eBay in the late 90s, Amazon in the 2000s or GoPro in the 2010s (oh wait, GoPro is also a total underperming dud…nevermind 😉 )
The shares are to be acquired by conglomerate Textron (TXT) at a 41% premium to current trading levels, though are still well within the company’s 52 week range (its been a long slide for ACAT, who was trading in the $60s in 2013 – note the chart above). For those wondering, Textron is not a snowmobile, UTV or SXS company, but they are big, with a market cap of $12 billion+, they are known to investor types as a “large cap” or “blue chip” company. Their business units include aviation, industrial and financial and customers span from businesses to the DoD. In a way, they are more “Stark Industries” than they are “powersports company”.
The deal is not done – other suitors could emerge, especially at this valuation. But nonetheless, Arctic Cat is likely getting bought…
We could babble on (and on) about the financial implications of the deal, and more Wall Street-esk thoughts, but that’s not the point of the website. The big question for those reading is “now what” and “what does this mean for kick-ass green mountain sleds”?
Well, that’s a good question. The mountain sled sector has been underperforming for a number of years now, so perhaps there will be a massive reorganization there. Then again, every segment has been underperforming, so who knows.
If I were a betting man, I’d say this is a good thing for the brand. The company acquiring Arctic Cat is big and profitable. They have resources to help the company make some changes needed to make their stuff more competitive with the competition and are acquiring the company at a “pretty good deal” (especially considering the patent infringement win with BRP, last quantified at $46.7M). To add, who knows the number of patents and technology that could potentially bleed over from other units.
“But Arctic Cat’s stuff has always been great”. Maybe. They’ve always had a kick ass motor. But their foray into 4 stroke with Yammy, overly heavy chassis, lagging UTV technology and *extremely* poor profit margin (possibly due to these overly complex partnerships) have created a bad environment for R&D investment and growth. Too many chefs in the kitchen with too small of a pie with the current structure.
So lets see what happens… we will say, acquisition aside, there 2018 release does seem a noteworthy step forward, but more of an evolution, not a revolution. Stay tuned on this one. One thing is for certain, things *will* get shaken up…