Editor’s Note: Robert W. Baird & Co. issued a client newsletter last week following Winnebago Industries Inc.’s announcement that it had completed the purchase of SunnyBrook Manufacturing Inc. Excerpts from the Baird newsletter follow.
Acquires SunnyBrook RV to enter towable market. As expected, Winnebago has acquired SunnyBrook RV, a small manufacturer of towables. We expect the financial impact to be modest. We like the deal as it enables Winnebago to leverage its well-recognized brand in the faster-growing towable RV segment.
Closes towable acquisition. Winnebago, through a newly created subsidiary, Winnebago of Indiana, purchased the assets of SunnyBrook RV for $5.7 million in cash, far less than we had assumed. The transaction represents a small but important step into the towable market – a category Winnebago has ignored for years.
Small but strategic. Based on limited information, we estimate its annual revenue at approximately $20 million, which would make the towable segment perhaps under 5% of go-forward Winnebago revenue. We expect Winnebago to issue an 8-K to clarify these figures, but the impact on our estimates is likely to be modest.
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 approximately 1,000 towables so far this year (0.9%), implying modest share losses.
Strategic rationale. The deal enables Winnebago to: 1) enter the faster-growing towable market; 2) establish a manufacturing footprint in the Elkhart, IN area, where most towables are made; 3) leverage the Winnebago brand in a new category; and 4) identify modest cost and distribution synergies. Winnebago has started small, which seems appropriate given its limited experience integrating acquisitions.
To subscribe to this or other Baird newsletters contact Craig R. Kennison, CFA, at firstname.lastname@example.org or (414) 765-3870.
Wednesday’s announcement, that Winnebago Industries Inc., had completed the purchase of SunnyBrook Manufacturing Inc., puts the Forest City, Iowa-based motorized manufacturer in good stead as the new year approaches.
The $5.7 million cash purchase accomplishes several key goals, according to Craig R. Kennison of Robert W. Baird & Co.
“The deal enables Winnebago to: 1) enter the faster-growing towable market; 2) establish a manufacturing footprint in the Elkhart, Ind., area, where most towables are made; 3) leverage the Winnebago brand in a new category; and 4) identify modest cost and distribution synergies. Winnebago has started small, which seems appropriate given its limited experience integrating acquisitions,” he said.
“We like the deal as it enables Winnebago to leverage its well-recognized brand in the faster-growing towable RV segment,” he added.
The sale is Winnebago’s first acquisition in more than 20 years, and analysts have said it indicates that the recreational vehicle market sees a sustained economic recovery, the Des Moines Register reported.
Winnebago said it would continue to manufacture the Indiana company’s line of towable trailers under the SunnyBrook name while also expanding the SunnyBrook product line to include Winnebago-brand trailer and fifth-wheel products.
Winnebago first announced in October that it was considering purchasing Middlebury, Ind.-based SunnyBrook.
At that time, analyst Kennison said the addition of towable trailers, a fast-growing piece of the recreational vehicle market, would be a good move for Winnebago and Bloomberg News reported the acquisition as a plus for the economy.
The actual price was well below Kennison’s October estimate that Winnebago would pay $15 million to $20 million for SunnyBrook based on his estimate that SunnyBrook’s annual revenue was between $30 million and $40 million.
Kennison now estimates the financial impact on Winnebago to be modest. He said the purchase price was “far less than we had assumed” and estimated the company’s annual revenues at $20 million.
The company announced the completion of the sale after the market had closed Wednesday with Winnebago shares losing 38 cents to close at $15.39. At today’s opening, shares traded higher briefly before dropping to about 13 cents lower.
Meanwhile, initial reaction from the town of more than 3,000 in northeast Elkhart County is also positive.
“From my perspective, it’s good to know that the business will stay here, good to know the emploeyes will have a place to work,” Mark Salee, town manager, told RVBUSINESS.com. “With the name Winnebago and the resources behind them, they could expand. That would be great.”
Winnebago will have its work cut out for it as it has purchased a brand going in the wrong direction, according to market research. SunnyBrook’s retail sales through October totaled 1,166 units, according to Statistical Surveys Inc., a 28% decline from the 1,623 it sold in the first 10 months of 2009. SunnyBrook’s market share declined 33% year-over-year, from 1.2% to 0.8%.
Winnebago will likely expand on its initial announcement with further details in a Securities and Exchange Commisison filing later today or Friday, Sheila Davis, the company’s PR and investor relations manager, told RVBUSINESS.com.
The synergies will help cut towable production costs as Winnebago already makes many of the components it uses for its motorized units and will likely provide some of them for the SunnyBrook operation in Middlebury.
Winnebago’s holiday shutdown in Iowa continues through Monday. Production will resume on Tuesday. SunnyBrook also is shut down for the holidays. SunnyBrook was founded in 1992 and has approximately 100 employees working in its 200,000-square-foot manufacturing facility in Middlebury. One plant will reopen for production on Jan. 3, the other on Jan. 10, Davis said.
Forest City, Iowa-based Winnebago Industries Inc. announced late today (Dec. 29) it had consummated the purchase of substantially all of the assets of SunnyBrook RV Inc., a wholly-owned subsidiary of SunnyBrook Manufacturing Inc., pursuant to an Asset Purchase Agreement for a total cost of $5.7 million in cash.
The acquisition was made through a newly formed, wholly-owned Winnebago subsidiary, Winnebago of Indiana LLC. According to a news release, Winnebago of Indiana will continue to manufacture towable products under the SunnyBrook brand and honor outstanding warranty commitments to current owners. Additionally, the new company plans to diversify the product line to include Winnebago-brand trailer and fifth-wheel products.
Elvie Frey, the president and majority owner of SunnyBrook Manufacturing, Middlebury, Ind., will remain with the company and serve as president of Winnebago of Indiana.
“We believe this acquisition will be highly successful,” said Winnebago Industries’ Chairman, CEO and President Bob Olson. “We are thrilled to have Elvie lead the new subsidiary forward.”
Randy Potts, Winnebago Industries’ senior vice president of strategic planning, added, “Winnebago Industries and SunnyBrook are two very quality-oriented companies and it was a great fit for us to have a presence in the heart of the RV capital. We believe we will be able to quickly grow the volume and market share of Winnebago of Indiana.”
“We are very excited to join the Winnebago Industries team and be part of an iconic American company,” said Frey. “This is a great opportunity for us to grow our organization as we develop exciting new products for both the SunnyBrook and Winnebago brands. We look forward to capitalizing on the top-notch Winnebago Industries’ dealer network as we bring them towable products to allow them to maximize their performance.”
Winnebago Industries Inc., the biggest U.S. maker of motorhomes, may make its first acquisition in more than 20 years, signaling the recreational vehicle market sees a sustained economic recovery, Bloomberg reported.
Winnebago may acquire SunnyBrook Manufacturing Inc., the privately held maker of towable recreational vehicles, by the end of the year, according to a statement Monday (Oct. 18). Winnebago, which didn’t disclose financial details, said it has signed a letter of intent and is still studying the potential deal.
A takeover by Forest City, Iowa-based Winnebago would mark an entry into the faster-growing towable RV market, Craig Kennison, an analyst at Robert W. Baird, wrote in a research note. The acquisition also reflects confidence among RV makers, which have foreshadowed economic declines and rebounds.
“There won’t be a double dip in the RV industry,” Mac Bryan, vice president of administration at the Recreation Vehicle Industry Association (RVIA), said Monday in a telephone interview. “This is a marketplace that is in recovery.”
The acquisition would be Winnebago’s first in more than 20 years, Sheila Davis, a spokeswoman, said in a telephone interview. Davis said the company, which announced in November 2009 that it was studying “potential diversification strategies,” may consider additional acquisitions.
Winnebago leads the motorhome industry with a 19% market share, according to Robert W. Baird’s Kennison, who is based in Milwaukee. SunnyBrook sold 1,700 towable RVs last year, making it the 13th largest manufacturer in that market, Kennison wrote in a research note.
‘Like the Concept’
“We like the concept,” he wrote. “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.”
Kennison estimates Middlebury, Indiana-based SunnyBrook’s annual revenue at $30 million to $40 million.
Wholesale deliveries by U.S. RV manufacturers surged 71% to 177,300 units through the first eight months of 2010, according to the RVIA. Shipments in all of 2009 were 165,700, the lowest since 1991, according to RVIA data, as consumers deferred discretionary purchases during the economic slump.
Shipments may rise to 239,900 in 2010, a gain of 45% from 2009, according to Richard Curtin, an RV industry analyst and director of consumer surveys at the University of Michigan. Industry shipments may increase 8% to 259,600 in 2011, according to Curtin, who analyzes data for the RVIA, the industry’s Reston, Virginia-based trade group.
The RV industry includes more than 80 manufacturers, RVIA’s Bryan said.
“This is the time in the business cycle where consolidation tends to occur,” Bryan said. “While we’re still seeing some problems continuing related to consumer confidence and the availability of credit, we’re finding that primary demand is very strong. Consumers want to be in RVs and in the outdoors.”
Among the investors reaping gains from the industry is Warren Buffett’s Berkshire Hathaway Inc. Berkshire’s Forest River Inc. RV unit helped the holding company’s manufacturing, service and retailing businesses more than double earnings to $1.15 billion in the six months through June 30, according to a regulatory filing.
Winnebago and Jackson Center, Ohio-based Thor Industries Inc. are the largest, publicly traded RV makers.
Shares of Winnebago have lost 20% this year after more than doubling in 2009. Thor has declined 1.6% this year.
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.