May 21 (IFR) - That BRP, the former recreational products
group of Bombardier, would appeal to investors on its IPO is
Public-comparables Polaris, Arctic Cat, and to a lesser
extent Harley Davidson have been on a tear, all trading at
historically rich multiples and at or near all-time high share
Realistically the only question was whether the company,
acquired by Bain Capital along with members of the founding
Beaudoin family and Caisse de depot in 2003, could capture that
full valuation. The answer was almost entirely.
Joint bookrunners BMO Capital Markets, RBC Capital Markets,
UBS and Citigroup set pricing on an upsized 12.2m shares at
C$21.50, the top of a C$18.50-$21.50 marketing range on a deal
originally sized at 11.7m shares, according to two sources close
to the situation.
The stock will begin trading on a when-issued basis tomorrow
morning and formally on the TSX under the symbol "DOO" on May
29, when the deal settles.
That the interest was geographically diverse - 55%/30%/15%
in US/Canada/international - is notable in light of pushback on
recent Canadian IPOs by Oryx Petroleum and Silver Ridge Power.
A lack of institutional support in the domestic markets
forced Oryx, an E&P with assets in Iraq and West Africa, to
accept a reduced valuation offered it by European accounts on
its IPO. Silver Ridge Power, a solar-power producer backed by
AES and Riverstone, pulled its C$150m IPO when faced with a
BRP, which makes popular recreational vehicles such as
Ski-Doo jet-skis and Sea-Doo snowmobiles, generates more than
one-third of its revenue outside the US and Canada.
The company's manufacturing facility in Finland, for
example, provides access to key snowmobile markets across
Scandinavia and Russia. The company's products are sold in 105
countries through 4,200 dealers.
At the same time, BRP is shifting a portion of North
American production to Mexico to lower operating costs.
To accommodate volume growth, it plans to shift production
from Canada to a new facility in Queretaro, Mexico beginning in
the second half of 2013, while keeping production at facilities
in Canada, Austria, the US and Finland at stable levels.
Management expects the production shift to generate annual
savings of US$25m-$30m by fiscal 2017.
By all accounts volumes are on the uptick.
For the fiscal year ended January 31, BRP reported
normalised EBITDA (excluding one-time costs) of C$336.1m on
revenue of C$2.89bn, up from C$262.2m and C$2.56bn last year.
The results compare to the C$217.3m on C$2.13bn posted for
2011, dragged down by a continued pullback in consumer spending
following the financial crisis. Between 2007 and 2011,
industry-wide volumes fell from 1.8m units to 900,000 units, the
company noted in its IPO prospectus.
BRP is using proceeds from the IPO to repay borrowings on a
new term loan that it used to fund a C$374m dividend in April.
It plans to distribute an additional C$155m to Bain prior to
closing, according to the original IPO prospectus.
By almost any measure, BRP has been a huge success for Bain
and its other owners. The IPO valued the company at roughly 9-
and 8-times EV-to-Ebitda for 2013 and 2014, in-line with that of
Polaris but a discount to the roughly 12- to 13-times that
Harley Davidson trades at.
BRP is the hottest consumer goods company to hit the
Canadian market since Tim Hortons' C$783m IPO back in 2006 -
total demand exceeded the number of shares offered by 10-times,
according to sources.