Polaris has been on a buying spree over the past decade, gobbling up high profile companies like Klim, 509, Cycle Country and Kolpin in the snowmobile and off-road markets and a handful of small electric cart brands. But the purchase announced on Wednesday is different because it gets Polaris into a new market, and for the first time ever Polaris will own retail stores.
Polaris announced Wednesday that it reached an agreement to purchase Transamerican Auto Parts, a California-based company that makes, installs and retails parts and accessories for off-road jeeps and trucks. Obviously Polaris has some crossover in that market, considering the popularity of its RZR side-by-sides in the off-road market, but still, now suddenly the company owns a major player in the larger automotive market.
Perhaps more interestingly, the purchase comes with 75 retail stores, six distribution centers and 1,750 employees, putting Polaris into the retail business for the first time in its long history.
The stores — called 4 Wheel Parts — are found in 23 states and 5 Canadian provinces, according to a search done this morning on the 4 Wheel Parts web site. Though they started in California, we spotted retail stores on the company’s list in Alabama, Alberta, Arizona, Arkansas, British Columbia, California, Colorado, Florida, Georgia, Hawaii, Idaho, Indiana, Kansas, Louisiana, Nevada, New Brunswick, New Mexico, North Carolina, Ohio, Oklahoma, Ontario, Oregon, Quebec, Tennessee, Texas, Utah, Virginia and Washington.
As a manufacturer who distributes its products through privately-owned Polaris dealerships, this is a big change, and has some wondering it offers any cues to a future where Polaris parts and accessories, if not whole powersports products, are offered through company-owned stores.
Here’s the press release issued Wednesday by Polaris.
Polaris Industries Inc. Announces Agreement to Acquire Transamerican Auto Parts
- Vertically integrated, multi-channel market leader in Off-Road Jeep and truck aftermarket accessories with sales of approximately $740 million and significant growth potential
- Highly complementary products serving off-road enthusiast customers; extends Polaris market reach
- Compelling financial benefits, including significant synergy opportunities
- Expected accretion to earnings per share, excluding purchase accounting/acquisition costs, for the full year 2017
MINNEAPOLIS, MN (October 12, 2016) — Polaris Industries Inc. (NYSE: PII) (“Polaris” or the “Company”) announced today that it has entered into an agreement to acquire Transamerican Auto Parts Company (“TAP”), a privately held, vertically integrated manufacturer, distributor, retailer and installer of off-road Jeep and truck accessories, for an aggregate consideration of $665 million, subject to customary closing adjustments. After adjusting for the $115 million estimated net present value of future tax benefits, the purchase price implies a multiple of approximately 9.0 times TAP’s EBITDA for the 12 months ended September 30, 2016.
TAP is a leader in the highly fragmented and growing $10+ billion Jeep and truck accessory market. TAP sells and installs an extensive line of accessories for Jeep and truck enthusiasts, including products manufactured under its seven proprietary, industry-leading aftermarket brands: PRO COMP®, RUBICON EXPRESS, SMITTYBILT®, POISON SPYDER™, G2™, LRG® and TRAIL MASTER®. TAP is the largest retailer and installer in the North American market, selling through its own retail and on-line network while also supporting numerous independent accessory retailers/installers. For the last 12 months ended September 30, 2016, TAP generated approximately $740 million in sales, and from 2012 through 2015, achieved compound annual sales growth of 15 percent and compound annual EBITDA growth of 17 percent.
“We are excited to add TAP’s market leading multi-channel business, proprietary brands, proven management team and experienced employees to the Polaris portfolio,” said Polaris Chairman and Chief Executive Officer Scott W. Wine. “This transaction is consistent with our long term strategy, provides us an immediate leadership position in a growing market, and allows us to accelerate Polaris’ growth and profitability. TAP’s products and services for customers in the off-road four-wheel-drive (‘4WD’) market correspond closely to our Off-Road Vehicle (‘ORV’) business. Further, by broadening TAP’s proprietary product lines, expanding its retail and distribution footprint, where appropriate, and cross-selling both companies’ extensive product offerings to a large combined installed base, we believe we will create significant value for our stakeholders. Our similar cultures, centered on innovative brands and performance, make TAP a great addition to Polaris’ expanding portfolio.”
“Over the past 55 years, our employees have built a company that prides itself on serving our customers with quality products at competitive prices,” said Greg Adler, TAP’s President and Chief Executive Officer. “We see tremendous opportunity for further growth as we become an integral part of the Polaris organization. Combining TAP with Polaris’ aftermarket brand portfolio facilitates significant synergies, while Polaris’ financial resources provide the backing we need to pursue a variety of growth prospects we have identified across the organization.”
Strategic and Financial Benefits
- Highly Complementary Product Lines: This acquisition creates a leading company across the 4WD off-road enthusiast market and extends Polaris’ presence in aftermarket accessories to attract new consumers to Polaris’ existing portfolio. In particular, TAP’s four-wheel-drive aftermarket products are highly complementary to Polaris ORV business.
- Expanded Accessories Portfolio and New Product Innovation Capabilities: Significant opportunities exist to incorporate TAP’s considerable off-road product development expertise into the creation of innovative accessories and capabilities for Polaris Engineered product offerings, while utilizing Polaris’ financial strength to accelerate TAP’s product development for its Jeep and truck customers.
- Significant Growth Potential: TAP manufactures and sources seven proprietary brands and sells and distributes products through multiple channels, including 75 4Wheel Parts stores and two robust online platforms (4wheelparts.com and www.4wd.com). TAP sells its brands, as well as more than 200 non-proprietary leading brands, through its own distribution channels and various independent retailers/installers. Polaris’ financial strength creates opportunities to accelerate TAP’s market penetration, and where appropriate, sell select Polaris aftermarket brands through TAP’s retail outlets.
- Compelling Financial Benefits: The transaction is expected to be accretive to Polaris’ earnings per share, excluding purchase accounting/acquisition costs, for the full year 2017. The Company expects meaningful annual cost savings within three years following closing, primarily from efficiencies related to procurement, distribution, and expanded product offerings.
The transaction is subject to regulatory approval and other customary closing conditions, and is expected to close by year-end 2016. Following the closing of the transaction, TAP will operate as a distinct business unit reporting to Steve Eastman, Polaris’ PG&A President. Polaris expects to fund the acquisition with borrowings under existing credit facilities.
BofA Merrill Lynch acted as exclusive financial advisor to Polaris, and Faegre Baker Daniels LLP acted as Polaris’ legal advisor. Jefferies acted as lead financial advisor to Transamerican. Houlihan Lokey also served as financial advisor to TAP and Sullivan & Cromwell acted as TAP’s legal advisor.