Baird Likes ‘Concept’ of Winnebago Purchase
Editor’s Note: Robert W. Baird & Co. issued a client newsletter following today’s announcement that Winnebago Industries Inc. has signed a letter of intent to buy SunnyBrook Manufactyring Inc. Excerpts of the Baird newsletter follow.
Considering acquisition of towable company. Winnebago is exploring an acquisition that would extend its RV brand into towables. Information is scarce, but we like the concept. Winnebago has the most recognizable brand in RVs, but has yet to leverage it in the faster-growing towable market. SunnyBrook would represent a small but strategic step in that direction.
Potential acquisition. Winnebago is exploring the idea of acquiring SunnyBrook Manufacturing, a smaller manufacturer of towable RVs. Winnebago has indicated it would complete its diligence process by the end of December, but the transaction has not closed. Prospective terms were not disclosed, although we do not expect Winnebago to take on additional debt or finance with stock.
SunnyBrook profile. SunnyBrook dealers sold over 1,700 towable RVs in 2009 (1.3% share), according to Statistical Surveys Inc., making it the No. 13 manufacturer of towables. SunnyBrook dealers have sold nearly 1,000 towables so far this year (0.9%), implying modest share losses. We estimate its annual revenue at approximately $30-40 million, which would make the towable segment perhaps 5-10% of go-forward Winnebago revenue. Recall that Thor recently purchased Heartland RV for 0.5x sales. Assuming a similar multiple for SunnyBrook, Winnebago would pay perhaps $15-$20 million for the acquisition.
Strategic rationale. If consummated, the deal would enable Winnebago to 1) enter the faster-growing towable market; 2) establish a manufacturing footprint in the Elkhart area, where most towables are made; 3) leverage the Winnebago brand in a new category; and 4) identify modest cost and distribution synergies.
Risks. Winnebago has started small, which seems appropriate given its limited experience integrating acquisitions. Meanwhile, SunnyBrook apparently has lost share in 2010, suggesting the price should be modest. Lastly, freight costs to distant markets (like California) can limit growth of Elkhart-based manufacturers.