THE news about Polaris' latest acquisition - outright purchase of the electric motorcycle business from Brammo - is the latest stage not just in the evolution of their relationship with the Ashland, Oregon based e-bike manufacturer, but also in sharp contrast to Harley-Davidson's conservatism in such matters, in an M&I spending spree in which CEO Scott Wine appears well set to deliver on his 2010 promise to spend some $300m of the company’s resources on buying their way to happiness in the following 3 to 5 years!
Following the abortive attempt to marry KTM in 2005/06, and their rather less ambitious "strategic alliance" with Bobcat in 2009, Polaris' 2010 purchase of Swissauto Powersports, the company that produced the 4-stroke Weber engine used in several of their snowmobiles (and developed race engines, including for MotoGP teams), the check book has been getting regular fresh air - ever since Wine committed Polaris to a program that he described as seeing the company "diversify intelligently" with deals that could "cross-pollinate".
At the time Indian and GEM had annual sales revenue of around $11m and $30m respectively, but given the progress that Polaris has made with both since then, especially with Indian, it is clear that in "splashing the cash" Wine's management team have been judicious and effective.
Indeed that is also reflected in the Minnesota based manufacturer's stock price performance in the past five years. Like Harley, their price bottomed-out just below $8.00 in 2009, but unlike Harley theirs has not stalled in the low $60.00s, rather it has been very much the star performer in powersports manufacturer terms, powering to more than double of Harley's at over $130.00 a share in January 2015.
The same year as the Indian deal, Polaris bought Goupil Industrie, a French $25m sales modular on-road commercial electric vehicle manufacturer, and, the same month, announced its first investment into Brammo.
At the time Wine described it as a "small but important investment for Polaris in an electric vehicle market that we feel is poised for significant growth." It bought Polaris an 8 percent stake in Brammo, and a second finance deal followed some time later.
Some two and half years later Polaris made another acquisition of another French company that is involved in small electric vehicles, Aixam Mega, marking its fourth foray into the electric powered vehicle sector in as many years, and that kind of puts former golf cart and delivery vehicle manufacturer Harley-Davidson's Project Livewire into an interesting context!
In 2012 Polaris is said to have spent a further $41.13m on mergers and acquisitions, including the acquisition of Idaho based technical riding gear brand Klim, and continued with a capital expenditure plan to increase production capacity that had started with a controversial 2010 announcement to build in Mexico.
Some of that capital went into joint venturing - Polaris committed $50m to a 50/50 joint venture plan to build a production facility in India with Eicher Motors - manufacturer of the Royal Enfield line of motorcycles among other activities (including a 50/50 commercial vehicle partnership with Volvo).
Indeed, just this month Polaris has announced that the facility will meet its planned 2015 readiness, and will soon start producing a highly fuel-efficient and inexpensive 600cc Greaves Cotton diesel powered four-wheeled delivery vehicle for the Indian market.
In the last four years Polaris' capital investments in its facilities have also included expanding its Wyoming Product Development Center, further developing its Spirit Lake, Iowa, footprint, growing its Vermillion, South Dakota, PG&A distribution center, building and then expanding its Monterrey, Mexico, facility, not, after all, closing its Osceola, Wisconsin, plant, opening a 345,000 sq ft factory in Poland last year, and just in January this year confirming an expected announcement to build a new 600,000 sq ft facility that will employ up to 1,700 people on a 453 acre site near Huntsville, Alabama.
In 2013 Polaris is said to have spent some $137.1m on expansion oriented investments, and a further $19.49m up to September 2013.
Some of the deals have included additions to its growing military equipment and vehicles operations (such as the purchase of a $2m turnover specialist software company called Primordial); more strategic partnerships, such as that with Ariens, the Wisconsin based manufacturer of outdoor power equipment; the Aixam Mega deal mentioned earlier, and further boosting its burgeoning PG&A line-up with acquisitions such as Kolpin and Pro Armor.
In 2013 Polaris’ sales revenue reached $3.8 bn, up from the $1.6 bn they'd dropped to in 2009. Little wonder then that when the opportunity arose in 2013 for Polaris to buy back nearly 4m shares of its common stock held by engine partner Fuji Heavy Industries, it was able to fund the $497.5m from a combination of cash on hand and $250m of borrowings under an existing revolving credit facility.
FHI had been an investor ever since Polaris went public in 1987, and been an engine supplier since 1968, indeed Polaris' sole engine supplier right up to 1995 when the company first started to produce its own engines, and still provided as many as 25 percent of their engines in 2013 – however, it is anticipated that this figure will diminish as Polaris continues to significantly expand its own engine portfolio.
Scott Wine is quoted as saying that he doesn't believe Polaris suffers from "not invented here" syndrome, and maybe there are no better recent examples of their willingness to enter market sectors that others had got to first, than the launch of the Slingshot three-wheeler, or of their preparedness to "buy in" strategic positioning and technology, rather than the decision to convert their minority position in Brammo into full effective ownership.
|Since becoming CEO in 2008, Scott Wine and his management team at Polaris have defied the stock market and shown a way forward for the powersports industry in the 21st century|
In the deal Polaris is also acting as a lead investor in a recapitalization of Brammo that will enable them to focus exclusively on the design, development and integration of electric vehicle powertrains, while Polaris will utilize the assets acquired to begin manufacturing electric motorcycles in the second half of 2015 at its Spirit Lake, Iowa facility.
“We have enjoyed our involvement with Brammo Motorcycles over the past three years, and our excitement about their industry-leading lithium-ion electric drivetrain technology has increased commensurate with their improvements in cost and performance", said Scott Wine.
This deal "strengthens not only Polaris’ commitment to bringing our consumers lithium-ion electric solutions, but also this partnership’s ability to continue innovating and developing leading electric drivetrain technology. We anticipate a return on these investments and believe the new alignment brings us that much closer to delivering world-class electric solutions across our products.”
Wine's focus on ROI is instructive - especially for anyone considering making Polaris stock part of their portfolio. When he became CEO, Polaris were already a decade into losses with their Victory Motorcycles program, and locked into a heavyweight cruiser market that was about to fall off a cliff.
In the past he has emphasized profitability. "Growth without margin expansion is worthless", he has said, and as the Head of a company which has understood the importance of allowing dealers to run lean inventory, and shown his disdain for inefficiencies, waste, bureaucracy and tardiness, he runs a tight ship - a solid foundation for ensuring that his management can continue being creative where acquisitions and investments are concerned without compromising their ability to continue building balance sheet strength.
If "intelligent diversification" and "cross-pollination" mean anything, it must mean laying down the basis for organic growth, and this Brammo acquisition is the latest in a long line of moves that show why the likes of Arctic Cat and BRP, as well as Harley-Davidson and other motorcycle manufacturers, are right to be keeping a close watch on Polaris.
It has to be said that when it comes to 'bang-for-the-buck' Polaris have shown that $300m can still go a long way!