Follow ArcticInsider on YouTube Follow ArcticInsider on Facebook       

PGA stuff


(8/19/2016)

It’s been 48 hours since we learned the shocking news that Textron has agreed to buy Arctic Cat for $247 million (plus existing debt), due to occur in the next couple of months provided that the shareholders approve the offer.

I say this was shocking news because the vast majority of Arctic Cat people – which includes employees, dealers and customers – weren’t expecting it. Selling the company wasn’t on the radar for most people.

Several insiders (those closest to the financial reality that has unfolded since Chris Metz took the helm of Arctic Cat in Dec. 2014) that I’ve talked to in recent days were not shocked at the news. They say that the writing has been on the wall, or more accurately the financial balance sheet, for at least six months. In just over 24 months, Arctic Cat has gone from a company with approximately $140 Million in the bank and essentially zero debt, to a company with approximately $10 Million in the bank as of last fiscal quarter, and approximately $75 million in debt. I’m not a numbers guy, but I’m seeing an approximately $200 million swing from black to red.

In another couple weeks we’ll see Arctic Cat’s fiscal 3rd quarter financial results, which I expect will look even more daunting than above. If I’m correct, the swing from profitability to loss will be even more dramatic.

People I’ve talked to believe that the only good path out of this predicament was to sell the company. They expected such an announcement for months. Their only uncertainty was who would rescue the brand.

Yamaha? Harley-Davidson? Private equity?

Immediately upon the announcement that Textron would be the knight in shiny armor, there was an enormous sigh of relief. Followed by strong optimism for the future of Arctic Cat.

The people expressing this optimism range from high-level people within Arctic Cat, to dealers, suppliers and people whom once played critical roles for the company but are no longer employed by the brand. In other words, this latter group no longer has a vested interest: their livelihoods are no longer on the line.

The reasons for optimism make perfect sense:

1. Arctic Cat will be purchased by a $13 billion dollar company. By comparison, Yamaha Motor Corp. is a $7.4 billion company; Polaris a $5.5 billion dollar company; Harley-Davidson a $10.6 billion dollar company; and BRP a $3 billion company.

With the financial backbone and diversification of Textron to support it, Arctic Cat could be far less vulnerable to the tumult of poor winters, excessive inventory and the like.

Moreover, the buying power afforded by a company the size of Textron (who produces oodles of E-Z-GO golf carts, for example) has the potential to lower prices from common vendors who supply things like batteries, clutches, headlights, tires, wheels, wiring harnesses, seat foam, plastic and the like. Lower pricing on supplies can enable lower pricing on retail units, higher margins, or both.

2. With the financial strength of a mother ship to support it, Arctic Cat might be able to invest in an aspect of its business that would have been too expensive, or perhaps risky, when it stood entirely on its own. Ideas that occur to me are a full build-out of its state-of-the-art engine facility in St. Cloud, Minn.; a high performance 4-stroke engine program; a snowmobile that is sized and priced as the modern day equivalent to the 1970s Jag; and full-scale dealer development and expansion.

3. Textron has a long history of acquiring companies, then making them financially strong, rather than gutting them of assets and discarding the rubble. And this is consistent with the message that both Arctic Cat and Textron expressed during the announcement. The exact words are:

“Arctic Cat will become part of Textron’s Specialized Vehicles business, maintaining its iconic Arctic Cat brand, as well as its current manufacturing, distribution and operational facilities, with a focus on growing the business.

“Textron plans to build on Arctic Cat’s strong brand and history of innovation. We expect many Arctic Cat employees to benefit from expanded career opportunities as part of a larger, more diversified company.”

For the executives at Textron that looked at Arctic Cat and decided to buy it, surely the value of the Arctic Cat brand, its facilities, employees, dealer network and passionate, loyal customers was central to their decision.

I’m very much encouraged by the fact that Textron’s Bad Boy UTV line is produced domestically in the U.S. Same for E-Z-Go and Jacobsen (including Dixie Chopper) vehicles.  

Of course, much of what I’m saying is pure speculation at this point. Textron has said very little at this point. The deal hasn’t yet happened. And we don’t know what decisions will be made once new leadership evaluates Arctic Cat from the inside, rather than from the outside as they’ve done up to this point.

There is tremendous uncertainty for many people right now, about whether they will part of the new Arctic Cat going forward. Full disclosure: I’m one of those people.

When I speculate about what Textron will do with Arctic Cat, I imagine it will retain the Thief River Falls and St. Cloud plants and the majority of its employees at them. Engineering staffs in both Snow and ATV/UTV divisions are simply not replaceable with all-new people.

I’m less certain about other facilities, including the new company HQ in downtown Minneapolis that opened this past summer. It’s easy for me to imagine that the remaining staff from this facility be relocated, perhaps to the St. Cloud facility, which would presumably cost far less to operate and, importantly, would be closer to engineering and productions staff.

Honestly, it remains to be seen what exactly Arctic Cat looks like as a company 6 months, a year, five years from now.

The people I’m most optimistic about though are Arctic Cat dealers and customers. I say that in part because of conversations I’ve had with Arctic Cat dealers who already sell Textron products. Under Textron ownership, I see an Arctic Cat that is less likely to force product into dealership inventory, for the simple reason that it will have the financial backbone to withstand the forces that compel most powersports manufacturers into this self-destructive practice.

And for those of us loyal customers, I see a new horizon with an even greater emphasis on quality that has come to define Arctic Cat in recent years. Arctic Cat could have delivered its C-TEC2 8000 engine a year ago, but it would have done so without fully vetting a new supplier for a critical component. The Arctic Cat of five or ten years ago might have taken the chance, but not the current company. I see an amplification of that mindset with the new ownership.

I know that many of us desire greater and more frequent improvements in technology on the machines we buy, particularly snowmobiles. We point to the long history of Arctic Cat machines being the biggest and fastest, with the most aggressive evolution.

My sincerest hope is that the new Arctic Cat will retain that legacy, but will not do so if it means any compromise in quality. How it tackles these kinds of decisions will ultimately define its future.

I’m optimistic, and hope to be a part of it.

Final thought: Arctic Cat has been a standalone company for 55 years, with no mother ship to support it. That’s an astounding run. There’s a part of me that’s saddened to see this run come to an end. But there’s a bigger part of me that hopeful for what the future will bring. I have such tremendous respect for, and faith in, the people at Arctic Cat whose passion runs deep. Their talent and dedication are the lifeblood of the brand. Given the right tools and resources, they will lead us into another half-century that’s even better than the first.

 



Midwest Riders Raeceline Wheels

SpeedWerx

ArcticCat

Action Graphics

Route 12 Arctic Cat

Blown Concepts Custom Vinyl Graphics

on Snow Magazine

Road Track and Trail

Thomas SnoSports

SLEDHEAD 24/7
 International Series of Champions

Christian Brothers Racing
Country Cat
SUPERTRAX International

D & D power Sports
Carver Performance Snowtech Magazine