Winnebago Industries, Inc. WGO has announced its decision to acquire privately held towable recreation vehicles (RVs) producer, Grand Design Recreational Vehicle Company, for roughly $500 million. The transaction is expected to be funded by roughly $395 million in cash and $105 million in newly issued shares of Winnebago, resulting in Grand Design's shareholders owning 14.5% of Winnebago's shares outstanding post the merger. The deal is expected to close by the end of Winnebago's first-quarter fiscal 2017, subject to regulatory approvals and customary closing conditions.
Per the deal, Winnebago will own Grand Design's tax assets valued at $75 million. Excluding the cost of assets, Winnebago's purchase price implies paying 7.1 times Grand Design's prior 12 months EBITDA of $60 million. However, the company generated revenues of $428 million in the 12 months ended Aug 2016. The figure represents over 80% compound annual growth rate since 2013 and an EBITDA margin of 14%. Global growth equity investors, Summit Partners, have also invested in Grand Design earlier.
The combined company will generate roughly $1.4 billion in pro forma revenue, in addition to enhancing Winnebago's growth, profit margins and earnings per share. Annual cost synergies post completion of the deal is projected at roughly $7 million, phased over three years. Synergies are expected to be achieved through better purchasing opportunities and removal of unnecessary processes, along with an upside potential from sharing manufacturing processes. The acquisition is also likely to help Winnebago lower its debt by significantly increasing its cash flow.
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Winnebago intends to increase its presence in the towables business as well as diversify its portfolio with this merger. Management believes that Grand Design's existing capabilities will not only complement that of Winnebago but will also help the company further capitalize on opportunities in the RV market. This is expected to increase profitability as well as long-term shareholder value for Winnebago.
If the transaction is completed, Grand Design will operate as a separate business unit under Winnebago, headquartered in Middlebury, IN. Dan Clark, currently the co-founder and CEO of Grand Design, will continue to lead the company as the President. He will also serve as Winnebago's Vice-President in addition to being a member of the Executive Leadership Team.
Also, Winnebago, operating in the same space as Thor Industries Inc. THO , Cavco Industries, Inc. CVCO and Skyline Corp. SKY , has announced preliminary results for fourth-quarter fiscal 2016. Revenues for the fourth quarter are expected to rise 4.9% year on year to roughly $263.3 million from $251 million in the prior-year quarter. Earnings per share in the fourth quarter are projected to increase 14% year over year to 49 cents. The expected EPS figure also includes a charge of a penny per share in relation to the impending merger with Grand Design. The actual results for the quarter will be announced on Oct 13.
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