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Forest River to Acquire Coachmen's RV Business for $42 Million
December 1, 2008 |
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Forest River, which describes itself as "America's
Largest Producer of Towable RVs and Cargo Trailers" and a
subsidiary of Warren Buffett's Berkshire Hathaway will acquire the
recreational vehicle division of Coachmen
Industries.
Coachmen's CEO praised the deal for
ending "the speculation over whether Coachmen itself will survive these
extraordinarily difficult times." Forest River will get most of
Coachmen's RV assets, including its brands, product lines, and
manufacturing operations in Indiana. Forest River has also agreed to
offer "continued employment" to almost 85 percent of Coachmen's RV Group
employees in that state.
Coachmen's RV Group
has continued to incur significant losses in 2008 while the Housing
Group has been modestly profitable throughout the first three quarters
of 2008, and will be profitable for the calendar year. Over the decade
1998 through 2007, the Housing Group provided $72 million in cumulative
net profits, while the RV Group posted $32 million in cumulative net
losses. The Company cites quality problems and the economic crisis as
reasons for its poor performance.
According to
the Company's
SEC Filing, the transaction will
result in approximately $42.2 million in cash to Coachmen.
The transaction
may be summarized as follows according to the Company's SEC Filing:
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Forest River will acquire the real estate, fixed assets and
equipment used in its traditional RV business located at
Coachmen’s main Middlebury, Indiana manufacturing complex, the
Viking manufacturing facility in Centreville, Michigan, and its
Michiana Easy Livin’ Country RV dealership located in Elkhart,
Indiana, at net book value, totaling
$10.6 million dollars.
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Forest River will acquire the Group’s finished goods, work in
process, and raw material inventory as of the closing date
according to agreed formulas. Based on unaudited figures, that
would result in approximately $27 million dollars.
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Forest River will pay for 100% of the Group’s accounts
receivable, $4.4 million dollars,
at October 31, subject to a repurchase obligation of uncollected
amounts after 45 days.
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There
are no financing contingencies to the transaction and it
expected to close
upon
shareholder approval.
In addition, the
transaction will result in the satisfaction of the liabilities of
the RV Group. Approximately
$18 million of balance sheet liabilities will be paid off as and
when due in the normal course of business. An escrow account in the
amount of $10 million will be established to satisfy contingent
liabilities, an amount significantly more than current reserves
based upon actual experience. This includes accrued RV warranty and
contingent “dealer buyback” obligations.
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Coachmen's
revenue has been sliding since 2005. The Company's RV revenue has
dropped from nearly $600 million per year to $250 million in the
trailing twelve months. Despite implementing an "Intensive Recovery
Plan," the Coachmen has been unable to improve its gross margins. The RV
Group does not seem to know how to do this, but obviously Forest River
believes they can fix the broken operation. |
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| From a valuation perspective,
Forest River paid 0.17 times Coachmen's trailing twelve months revenue.
That's below average for the industry but it is well above competing
laggards (what an oxymoron!). |
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12/1/2008 |
Market |
Sales |
PS |
EBITDA |
As a % |
PEBITDA |
Earnings |
As a % |
PE |
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Ticker |
Cap ($M) |
($M ttm) |
Ratio |
($M ttm) |
Sales |
Ratio |
($M ttm) |
Sales |
Ratio |
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COA |
27
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370 |
0.07 |
(23.1) |
-6.3% |
(1.15) |
(29.9) |
-8.1% |
(0.89) |
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CRV |
4
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142 |
0.03 |
0.7 |
0.5% |
5.77 |
(1.1) |
-0.8% |
(3.95) |
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DW |
244
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572 |
0.43 |
61.7 |
10.8% |
3.95 |
27.4 |
4.8% |
8.91 |
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FLE |
9
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1,210 |
0.01 |
(81.0) |
-6.7% |
(0.11) |
(77.9) |
-6.4% |
(0.12) |
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MNC |
22
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913 |
0.02 |
(16.4) |
-1.8% |
(1.31) |
(87.5) |
-9.6% |
(0.25) |
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PATK |
7
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417 |
0.02 |
2.9 |
0.7% |
2.33 |
(6.4) |
-1.5% |
(1.05) |
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PII |
846
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1,990 |
0.43 |
253.9 |
12.8% |
3.33 |
119.2 |
6.0% |
7.10 |
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SKY |
164
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268 |
0.61 |
(6.6) |
-2.5% |
(24.82) |
(10.4) |
-3.9% |
(15.76) |
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SPAR |
87
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936 |
0.09 |
80.3 |
8.6% |
1.08 |
48.1 |
5.1% |
1.80 |
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THO |
769
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2,640 |
0.29 |
163.5 |
6.2% |
4.70 |
92.7 |
3.5% |
8.29 |
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WGO |
138
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604 |
0.23 |
6.1 |
1.0% |
22.44 |
2.8 |
0.5% |
49.57 |
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Total/Avg. |
2,316 |
10,061 |
0.23 |
442.0 |
4.4% |
5.24 |
76.8 |
0.8% |
30.16 |
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| Those are all great reasons to sell, but why does
Forest River want Coachmen? Market share. Forest River's and Coachmen's
product lines overlap 100% so the deal will not provide entry into new
markets. However, the Company's revenue is sliding at a rate that by the
time the deal is done and post merger integration is underway,
Coachmen's market share will shrink further. At a time when the industry
is going backwards in a hurry, Forest River should probably be focused
on its own profitability rather than taking on a basket case like
Coachmen. This could turn out to be an anchor around Forest River's neck
at a time they can least afford it. |
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Manufacturer |
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Forest River |
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Winnebago |
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Motorized RV’s |
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Motorhomes
(Class A) |
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v |
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Conversions
(Class B) |
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v |
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Mini-Motor
(Class C) |
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Towable RV’s |
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Travel
Trailers |
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Folding
Trailers |
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5th Wheel
Trailers |
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Truck Campers
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Other Segments |
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Manufactured
Housing |
B |
v |
v |
v |
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v |
v |
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Other Vehicles |
vf |
v |
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v |
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