Dorel Industries Inc. announced that it has entered into a definitive agreement to sell Dorel Sports, its bike segment that includes Cannondale and Schwinn, to Pon Holdings B.V., a Dutch mobility group, for U.S. $810 million in cash.
The acquisition price represents approximately CAD $1 billion, payable to Dorel at closing. Dorel Sports also includes GT, Mongoose, Caloi, and IronHorse. Dorel Industries, based in Montreal, also operates Dorel Home and Dorel Juvenile segments.
Pon Holdings has a portfolio of more than 10 bike brands, including Gazelle, Cervélo, FOCUS, Santa Cruz, Kalkhoff, and Faraday. According to its website, Pon is one of the top five makers in the global bicycle industry and delivered more than 72,000 bicycles globally in 2020. More than half of those bicycles were electric.
Dorel said it expects to use the net proceeds from the sale of approximately US $735 million (subject to closing adjustments) to reduce indebtedness, return capital to shareholders and for general corporate purposes. The sale of Dorel Sports is expected to close before the end of the first quarter of 2022. Dorel intends to announce specific details regarding the use of the net proceeds from the sale at the time of closing.
The sale has been unanimously approved by Dorel’s Board of Directors and is subject to customary closing conditions, including receipt of applicable regulatory approvals and the absence of any material adverse changes with respect to Dorel Sports until closing. The sale is not subject to any financing conditions. The transaction will consist of the sale by Dorel of 100 percent of the shares of its indirect wholly-owned subsidiary companies comprising Dorel Sports as well as certain related assets. Under applicable corporate law, the transaction is not subject to approval by Dorel’s shareholders.
“Acting on feedback from our shareholders, Dorel embarked on a thorough review of strategic alternatives earlier this year. Our objective has consistently been to create value for our shareholders. The divestiture of Dorel Sports represents a unique opportunity to unlock value by capitalizing on strong demand for scaled assets in the bicycle segment,” said Martin Schwartz, Dorel president and CEO. “On behalf of the Board of Directors, I extend my sincere thanks to the entire Dorel Sports team for their outstanding efforts over the years. Dorel Sports has been an important part of our organization since 2004 and we are very proud of the global success it has achieved. While making the decision to sell Dorel Sports has been difficult, we are confident that this transaction represents full value for Dorel shareholders,” Schwartz added.
Value Surfacing For Dorel Shareholders
The definitive sale agreement with Pon Holdings follows a strategic review and a competitive sales process. Dorel said it believes that the “100 percent cash transaction will support significant proceeds and will unlock the full value of the Dorel Sports business for Dorel shareholders.” Dorel further believes that the interest in Dorel Sports expressed during the robust sales process “reflects the excellent work by the Dorel Sports team to improve profitability, gain new customers and enhance the operating structure and cost profile of Dorel Sports.”
Next Chapter For Dorel
Dorel said the agreement to sell Dorel Sports marks an “exciting new chapter for Dorel.” Dorel believes that the sale of Dorel Sports will strengthen its balance sheet, allow the company to focus on generating profits from its remaining businesses, accelerate its ability to deleverage the business, and position Dorel to grow its Home and Juvenile businesses, both organically and through value-accretive tuck-in acquisitions. Moving forward, Dorel said it would focus its energy and resources on delivering value to shareholders by accelerating growth and driving margin expansion in its Home and Juvenile businesses. With a stronger balance sheet after the close of this transaction, a portfolio of brands and products, customer demand, and growing end-markets, Dorel said it believes it will continue to compete from a position of strength.
“Dorel is committed to taking a disciplined approach to value creation as it sees significant upside in both its Home and Juvenile businesses and will look to replicate the success it has achieved with Dorel Sports to create additional value for shareholders. To be clear, at this time, we are not pursuing a monetization of our Home and Juvenile segments. We see opportunities to drive top-line growth as well as initiatives to reduce our overall cost structure to improve our cash-flow generation at both segments,” said Schwartz. “We have the right management and strategy in place at both businesses to drive strong results in the medium-term. We will re-assess our strategy as required. While we may retain some capital from the sale of Dorel Sports for potential reinvestment opportunities, we currently intend to reduce financial leverage and return capital to shareholders,” Schwartz added.
Near-Term Challenges In Home And Juvenile Segments
As in many industries, the uncertainty of supply remains a key concern for Dorel’s Home and Juvenile businesses, according to Dorel. The demand for container freight continues to drive up costs and has impacted its ability to meet consumer demand for its products. In addition, the effect of the pandemic in various parts of the world and labor availability for Dorel and its stakeholders are factors with which it is working through. Dorel’s ability to successfully manage these issues with its vendor and retailer partners will be key to its ability to deliver products. In the Home and Juvenile segments, inflation and a stressed supply chain have forced the company to reduce its outlook found in its August 6, 2021 press release. Dorel will announce its third quarter, 2021 results on November 5, 2021, prior to the opening of financial markets.
In connection with the sale of Dorel Sports, Baird Global Investment Banking and BMO Capital Markets are acting as financial advisors, Fasken Martineau DuMoulin LLP is acting as legal counsel to Dorel and Lazard is acting as financial advisor. Goodmans is the legal advisor to Pon Holdings in connection with the sale of Dorel Sports.
Photo courtesy Dorel Sports