The owners of Global Motorsport Group, Inc., have retained a Chicago mergers and acquisitions specialist to help find a potential buyer for the company, Dealernews has learned.
Global, the Morgan Hills, Calif., powersports distributor, is controlled by an affiliate of Cerberus Capital Management L.P., the huge New York-based international investment group. Two of Global's subsidiaries, Custom Chrome and Custom Chrome Europe, provide parts and accessories to the Harley-Davidson market. A third subsidiary, Motorcycle Stuff, serves the metric motorcycle market as well as the ATV and PWC markets.
Cerberus has retained Lincoln International Advisors LLC to assist in the possible sale of Global. Lincoln provides international advice on mergers and acquisitions (M&A), corporate financing, and distressed situations/financial restructurings, among other services. Lincoln expects to close nearly 75 M&A deals this year, up from about 60 similar transactions last year.
Cerberus acquired majority interest in Global two years ago following credit problems by the previous owner. Cerberus holds controlling or significant interests in companies with revenues of more than $60 billion, including Chrysler automotive. It manages investments worth more than $26 billion.
It's unclear what Cerberus' asking price for Global might be.
However, a national distribution expert with knowledge of the powersports industry told Dealernews a corporate sale of this type could expect to bring something in the range of 35 percent of sales or perhaps five times EBIDTA (Earnings Before Interest Depreciation, Taxes and Amortization). Global's total revenue this year is expected to be less than $150 million while its EBIDTA is expected to be less than $2 million.
"The question," said the executive, "is, 'How much baggage do I have to get rid of?'" In other words, he says, how much excess inventory and facilities would have to be disposed of to make a deal work for a buyer?
Both Global and Lincoln are tight-lipped about the deal. Representatives of Lincoln declined to comment about the agreement when Dealernews contacted them, and executives at Global did not reply to Dealernews requests for interviews. A Cerberus spokesman referred calls to Global.
Global had been struggling with cash flow problems under its previous owner, Stonington Partners, a private equity firm that took the company private. The situation has continued under Cerberus. Lack of cash caused payment problems with vendors, which limited product availability.
When it took control, Cerberus moved aggressively to cut costs by laying off staff, closing facilities and integrating Global's operations scattered around the globe. The moves resulted in substantial cost savings and reportedly returned the company to profitability, but didn't solve the company's inventory problems; for several years it has struggled to maintain adequate levels of popular products and to get those products to dealers timely.
In this type of situation, said one distribution expert, "You have to buy more inventory than sales can support."
Fill rates have been below industry averages for several years, especially at Custom Chrome.
Cerberus has a record of quickly cutting costs of companies it acquires, at the same time that it provides the companies with working capital and management expertise. For example, at Chrysler, the company slashed 10,000 jobs, dropped four car models and eliminated five production shifts shortly after taking over, according to one published report.
Under Cerberus' tough hand, Global has returned to profitability this year, according to information company executives previously provided to Dealernews.
Global has been losing market share in the highly competitive U.S. powersports segment for several years. But Cerberus says opportunities exist for a buyer to hike earnings by continuing to implement the strategies that it has put in place.