Thursday, April 18, 2013

Lucky Canadians get chance to buy into the manufacturer of Ski-Doos for first time in a decade

That's no doubt something Canadians have been clamouring for...

In my morning Globe and Mail Tim Kiladze is so excited about this news that he tells me twice. He also tells me that

Typically, private equity investors such as Bain prefer to hold their investments for five to seven years and then either sell them to another private investor, or exit through a public offering. However, BRP's "liquidity event," as it is known on Bay Street, has been delayed for years because the company  hit a rough spot in the aftermath of the financial crisis, when fewer consumers wanted to purchase new snowmobiles and watercraft.

That certainly is an informative paragraph. Hedge funds "prefer" to hold for five to seven years? Where does Kiladze glean this tidbit from? Bain and everybody else sees five to seven as an unfortunate reality if you couldn't get out in two or three. Six months is even better.

IPO's are known as "liquidity events?" Who knew? Maybe Bay Street has succumbed to the mandarin's syndrome of using six syllables where three have always been perfectly adequate, as in "go public" or "IPO."

But I don't want to belabour little issues. Kiladze does provide us with some useful info; the Bain ownership group paid themselves a special dividend of $310 million in 2006, another special dividend of $376 million last year, and will take "an additional dividend" of $155 million before the IPO closes.

That adds up to $841 million that the ownership group, led by Bain, will have taken out of the company in ten years.

To say nothing of management and consulting fees.

What our intrepid Globe and Mail reporter neglects to report is what Bain paid for Ski-Doo, or BRP as it is now known.

That number was $875 million US. Of the purchase price only about $150 million was cash.

In other words, Bain and their partners had doubled their initial investment within three years. Last year's $376 million payout was gravy on the gravy, and the $155 million yet to come is the cherry on top.

And believe it or not, the story gets even better. For Bain.

Here's a final quote from Tim Kiladze;

While BRP is offering Canadians the chance to invest in the turnaround, the private equity backers are not relinquishing control. The shares being offered are subordinate voting shares... public investors who buy into the IPO will not be entitled to dividends.

So after about a 500% return on their investment, Bain gets to flog the dregs in a IPO... oh, I meant to say a "liquidity event," and still gets to keep control of the cash flow, management fees, etc.

And I get a chance to have a piece of this?

I'm in! Where do I sign up?

No comments:

Post a Comment