Those of you that read this publication religiously know that deals are frequently announced that catch my eye. And when they do, I usually introduce them in this forum because of some unique feature that I think might be of interest to you as well.
A few weeks ago another deal closing announcement got my attention. At the time, I thought, wow, what a unique investment. It wasn’t until a few weeks later when reading about the premiere of the new Tom Hank’s movie, Larry Crowne that it all began to make sense.
Image source: Just Scoot
Not to worry, I won’t spoil the plot for those of you that have not seen the movie (although one could argue that any time you team Tom Hanks with Julia Roberts you get an idea of where the movie is going)! The unique aspect of the film that prompted my interest is that Tom Hanks rides a “scooter” throughout the movie. In fact, it is his principle mode of transportation.
So what does this have to do with a deal announcement?
Chicago Associates, a private equity firm, recently recapitalized a company by the name of Genuine Scooters, LLC. For those of you unfamiliar with the company, Genuine Scooters is located in Chicago and is a nationally renowned recreational scooter company that has emerged as the “American scooter company” with its flagship brands Buddy and Stella and its reputation for quality and customer service. The Company also operates a scooter dealership in Chicago, under the names Scooterworks USA and Scooterworks Chicago, respectively.
A New Mode of Transportation?
I would assume that most of you have seen these under-sized motorcycles puttering about in your cities. Vespa’s have been around for years but as I learned, there are lots of other brands and models. In fact, most of the major motorcycle labels have their own scooter models. Available in a variety of styles and sizes, new scooters from reputable brands start at about $3,000 and prices can run up to about $9,000.
According to the California DMV, scooters need to be registered with the state and require an M1 driver’s license. And despite how goofy they may look while riding, helmets are required! At least in California.
If you’re like me you might ask, why would an equity firm invest in a fad like scooters? I mean, who really wants to ride an undersized Harley anyway?
Well it turns out that there is a direct correlation between gas prices and scooter sales. In fact, this year U.S. scooter sales have surged. According the Motorcycle Industry Council sales jumped 50% for the first quarter of 2011 compared with a year earlier. In 2008, when gas prices last spiked, scooter sales escalated to the highest level ever in the U.S. with 228,000 sold. And experts foresee more growth ahead:
“Every time gas prices fluctuate, there seems to be a big interest in alternative kinds of vehicles of all different types,” said Leslie Kendall, curator at L.A.’s Petersen Automotive Museum on Wilshire Boulevard. “You can’t help but notice there’s an awful lot of scooters out there now,” he said. “They’ve evolved to a point where they’re truly viable transportation for a lot of people.”
So the folks at Chicago Associates are banking on two things:
- Scooters are not a fad
- Gas prices will continue their climb to the heavens
Are they going to be right? Only time will tell.
However, my hunch tells me that they have done their research and have plans to expand the initial platform investment they made in Genuine Scooters by investing in the brand and growing the company’s footprint nationally and possibly internationally. Their moves coupled with what we can only expect will be ongoing, long-term increases in gas prices will position Chicago Associates to earn a nice return on their initial investment.
An Investment Firm for Every Industry
This is an example of the research that equity firms perform as they look for investment opportunities. You may think that your company is in an industry not attractive to professional investors. I mean just look at the fluctuations of scooter sales:
- 2008 = 228,000 sold
- 2009 = 77,000
- 2010 = 77,000
- 2011 = Sales up 50% in 1Q
If you operated in an industry with sales fluctuations like this you would probably consider your firm to be less than desirable to professional investors. That could be the worst assumption of your life! Clearly Chicago Associates saw something in Genuine Scooters that led the managing directors there to believe that the long-term future for scooters is very bright indeed. Or as Tom Hanks put it at the premiere of Larry Crowne:
“We should all be on these scooters, Los Angeles should look like Taipei,” he beamed. “Hey it’s dirt cheap and you have the wind blowing through your hair on a beautiful day like today.”
It will be interesting to watch Chicago Associates as it grows its platform in this interesting niche! I would bet that it will also expand this initial platform investment via additional acquisitions of add-on companies that are synergistic to Genuine Scooters.
So if you own a middle-market business that is involved in any aspect of the scooter industry, either manufacturing parts or scooters, retailing the products, or manufacturing accessories (I bet we will see a new line of scooter clothing coming out of this), you should begin positioning yourself for potential buyer interest; and Chicago Associates is probably not the only equity firm eyeing this niche. I am sure that there are others.
Partnering with an M&A advisory firm is the most effective way to ensure that your company is buyer ready. Since it appears that this niche is heating up, it would be wise to do so sooner rather than later!
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