Fin 798 Private Equity Class Presentation On Arctic Cat (Final)

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Fin 798 Private Equity Class Presentation On Arctic Cat (Final)

  1. 1. CCC Investments Acquisition of Arctic Cat<br />Jack Brown<br />Logan Handibode<br />Keith Preston<br />Kurt Wunderlich<br />Marty Christensen<br />
  2. 2. CCC Investments Fund I<br />Funds<br />2008 CCC Investments Fund III LP $700 Million<br />2006 CCC Investments Fund II LP $450 Million<br />2004 CCC Investments Fund I LP $250 Million<br />Fund life = 7 years (2015)<br />Areas of Expertise:<br />Business Services <br />Operations Management<br />Finance<br />Consumer Services <br />Legal<br />Media/Communications <br />
  3. 3. CCC Fund III – Investment Criteria<br />
  4. 4. Management Team<br />Over 40 Years Mgmt Experience including:<br />Corporate Finance<br />Manufacturing Operations<br />R&D Engineering<br />Logistics<br />M&A and PE transactional experience<br />Legal<br />
  5. 5. Artic Cat Inc. Background<br />Thief River Falls, Minnesota<br />Products: Snowmobiles, ATV’s, and General Parts & Accessories<br />Design, engineer, manufacture and market snowmobiles and ATV’s as well as related parts/service operations<br />Market through distributors/dealers network (US, Canada , EU)<br />Strong brand +40 years<br />Nasdaq ticker: ACAT<br />NO FINANCING ARM: Customers rely heavily on independent financing<br />
  6. 6. ACAT Financial Highlights<br />Price (11/7/08) = $7.62<br />Market Cap = $137M<br />EPS (end 3/30/08): ($.18)<br />52 week range: $17.95 - $6.30<br />No long-term debt<br />Future EPS Consensus (3/30/09): $.11<br />
  7. 7. ACAT Product Info<br />SNOWMOBILES:<br />Full line of snowmobiles including 41 total models<br />Retail prices range from $5,500-$13,000 per unit<br />Model categories are: Performance, Mountain, Crossover, Touring & Utility<br />ATV’S:<br />First model produced in Dec ’95<br />Offering has grown to 24 models<br />Retail prices range from $3,600 to $10,500 per unit<br />Model categories are: Performance, Mountain, Crossover, Touring & Utility<br />Parts, Garments & Accessories<br />Growing segment for ACAT<br />
  8. 8. ACAT Product Breakdown<br />
  9. 9. Industry Background<br />Snowmobiles<br />1950’s to 1970’s dramatic industry expansion<br />Reached peak of over 100 mfg’s & 500K units sold in 1971<br />After consolidation - 4 main participants: <br />Arctic Cat<br />Bombardier (BRP)<br />Polaris<br />Yamaha<br />Barriers to Entry – increased brand loyalty, longstanding dealer/distributor networks, limited engine sources, high start up costs<br />
  10. 10. Industry Background<br />All-Terrain Vehicles (ATV’s)<br />Early 1970’s evolution to the current 4 wheel model <br />Sales climbed to 535K units in 1986, fell to low of 147K by 1991<br />Sales in 2007 domestic reached 637K units and 88K units in Canada<br />Major players include:<br />Arctic Cat<br />Honda<br />Yamaha<br />Kawazaki<br />Bombardier<br />Polaris<br />Suzuki<br />
  11. 11. Industry Analysis<br />Adverse affects of “credit crunch”, recessionary pressures<br />Unexpected increase in raw materials<br />Increased competition in ATV and snowmobile markets<br />Impact of weather – inadequate snowfall<br />Increased consolidation within industry <br />Customer demographics (lower income groups) are greatly impacted by constrained credit market and macroeconomic concerns<br />Overall ATV industry sales decline of 20 -30%<br />
  12. 12. Industry Outlook is Negative<br />
  13. 13. ACAT’s Largest Competitor - Polaris<br />Revenue = $1.8B (3x ACAT)<br />Market cap = $1.05B (7.7x ACAT)<br />Synergies with ACAT:<br />Geography – all mfg and product development in MN and surrounding states<br />Dual product line – ATV, snowmobiles<br />Customer base – mostly North America<br />Also looking for growth internationally<br />
  14. 14. Comparables (Polaris 2007)<br />
  15. 15. ACAT as Polaris (ACAT 2009)<br />
  16. 16. Leisure/Power Sports Industry Comparables <br />
  17. 17. APV Valuation<br />APV Valuation = $187.7M<br />Based on 5 year forecast with the following assumptions<br />Several declining years of revenue before rebounding conservatively(-20%, -12%, 2%, 7%, 7%) due to macro pressures - ATV outlook forecasts 20% decline<br />2008 EBIT = -1.5% of revenue that eventually returns to 4% in 2013<br />Rise in revenue 2011-2013 based on Mesirow Financial&apos;s Econ. Forecast that by end of 2009 personal consumption and disposable income will begin to rise<br />Depreciation and Amortization kept steady at ACAT&apos;s avg of 3% of revenue<br />Taxes held constant at historical rate of 31.02%<br />Changes in Net Working Capital based on last 5 years of history (% of revenue - approx. 18%)<br />CAPEX decreasing in 2009 as business declines, keeping in line w/ revenues - begins ramping back up in 2010 as business begins growth through 2013<br />6% rate on Senior Bank Debt due to our AAA rating<br />Risk free rate is 3.5% based on 10 yr Treasury Note as of 11/10/08<br />
  18. 18. Transaction Structure/Funding<br />Agreement and Plan of Merger<br />18.07M shares issued and outstanding<br />$10.10/share of capital stock<br />Purchase Price = $182.5M<br />CCC expect to fund $63M in equity and $63M in senior secured debt<br />Suzuki Motor Corporation will rollover its 33% stake valued at $62.1M<br />
  19. 19.
  20. 20. CCC Value-Add<br />Reduction in total models, phasing out of older or unsuccessful models<br />Grow international sales: EU & Asia<br />July 2005, acquired 100% interest in EU company marketing ATV<br />Broader engine strategy: development, technology, manufacture, engineering expertise (Suzuki partnership 30%)<br />Conform operational process and production to create pre-merger synergies for trade sale with Polaris<br />Financial engineering though Debt financing, utilize tax shield<br />
  21. 21. Exit Strategy<br />Primary: Trade Sale – Polaris<br />Synergies: operations, location (MN), component sourcing, customers, etc.<br />ACAT is appropriate size for acquisition (1/3 of Polaris)<br /> Polaris can expand customer financing to ACAT customers<br />Secondary: Trade Sale - Suzuki Motor Corp.<br />Gain entrance into the U.S. market with an established ATV and snowmobile producer<br />Allow Suzuki to move more of its products such as motorcycles and scooters into the U.S. <br />Directly compete with Polaris<br />Advantage of being familiar with Arctic Cat<br />
  22. 22. Exit Strategy Cont’d<br />Third: Trade Sale to Bombardier (BRP)<br />Fourth: IPO<br />U.S. markets should pick up in the next several years <br />Lastly: LBO of LBO<br />Operational and financial value-add<br />
  23. 23. Deal Summary<br />
  24. 24. Questions???<br />
  25. 25. Works Cited<br />Arctic Cat 10-K for the fiscal year ended March 31, 2008<br /><ul><li>http://www.sec.gov/cgi-bin/browse-edgar?company=Arctic+Cat+&match=&CIK=&filenum=&State=&SIC=&owner=include&action=getcompany</li></ul>Arctic Cat 2008 Annual report for the year ended March 31, 2008<br /><ul><li>http://library.corporate-ir.net/library/97/979/97941/items/303803/ArcticCat_2008_AR.pdf</li></ul>Arctic Cat 10-Q for the quarter ended June 30, 2008<br /><ul><li>http://www.sec.gov/Archives/edgar/data/719866/000110465908051716/0001104659-08-051716-index.htm</li></ul>Arctic Cat 10-Q for the quarter ended September 30, 2008<br /><ul><li>http://www.sec.gov/Archives/edgar/data/719866/000110465908069732/0001104659-08-069732-index.htm</li></li></ul><li>Works Cited<br />Arctic Cat Definitive Proxy Statement<br /><ul><li>http://www.sec.gov/Archives/edgar/data/719866/000089710108001473/0000897101-08-001473-index.htm</li></ul>Arctic Cat Website<br /><ul><li>http://www.arctic-cat.com/</li></ul>Swonk, Diane. (20081 November 10). Mesirow Financial Themes on the Economy.<br />FTN Midwest Securities Corp. Arctic Cat Report, dated September 15, 2008<br />FTN Midwest Securities Corp. Arctic Cat Report, dated October 15, 2008<br />KeyBanc Capital Markets Leisure Industry: 3Q08 Earnings Preview<br />

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