Winnebago Acquires Newmar

Say it isn’t so. Newmar is now owned by, ahem, Winnebago?

I just finished the conference call held by Winnebago Industries’ CEO, Michael Happe. The call confirms my concern about this acquisition. Newmar’s fate is sealed. It will be another cog in a faceless corporation to drive value to shareholders.

Sad. So sad.

I guess if someone offers you $344 million in cash and stock, you take the deal, especially when you see the potential for a really bad storm on the horizon.

This was Newmar, in case you did not know:

At Newmar, we’re passionate about RVs because we have a passion for the RV lifestyle, and every single one of us takes pride in creating world-class motorhomes that represent the hardworking people of Nappanee, Indiana.

Through our commitment to customer-driven innovation and precision craftsmanship, we build superior-quality Class A motor coaches, each engineered and appointed to deliver you and your family with a positively residential experience day after day, year after year.

And what is Happe’s perspective on the deal? Let’s digest the corporate bingo words shall we?

… this acquisition enhances the scale and profitability of Winnebago’s overall motorhome business and greatly improves our cash flow generation, which we expect will translate to immediate accretion to the fiscal 2020 cash EPS.

In addition in the same way we approach driving continuous operational improvement through our acquisition of Grand Design, we believe that Newmar’s experienced leadership team and their team across their company along with their strong manufacturing processes will create opportunities to drive synergies across the whole of our motorhome segment. At the same time, we also feel confident that the terms of our agreement allow Winnebago Industries to maintain ample balance sheet flexibility to continue investing in our business, while quickly deleveraging and delivering value to our shareholders, even in a challenging macro market.

Okay. So the deal is about immediate accretion to cash EPS and operational improvements, synergies and, of course, the ultimate objective to deliver shareholder value.

A few interesting details about Newmar came out during the conference call.

In the last 12 months, Newmar generated revenue of $661 million with an adjusted EBITDA of $55.2 million. Not bad. They have seen compound annual growth rates of roughly 20 percent since 2013. Impressive. Although the specific margins were not disclosed in the call, they were characterized as being much higher than the Winnebago products.

Matt Miller, President and CEO of Newmar will report directly to Michael Happe. For how long? We shall see.

There was a lengthy discussion on how Newmar has fared in prior down cycles. I guess the analysts covering Winnebago must know something about what might be coming soon to the RV industry.

The short answer, not all that well. The upcoming downturn may be different (apparently) due to variability of Newmar’s cost model. Newmar has maintained a cost structure that is roughly 90 percent variable. Which means they can manage those variable costs by managing capacity. In effect, reducing the labor element and reducing production. Almost all of the current production going down Newmar’s manufacturing line has someone’s name on it. A dealer or a customer. Newmar does not build open stock or open inventory. They build to order.

Winnebago had less than 3 percent share of the North American RV market in 2015. When the deal with Newmar closes, it will be in the double digits. The RV market is basically a duopoly between Thor and Berkshire Hathaway (Forest River).

I have to say that I am very unhappy with the news. Publicly traded corporations seek ways to maximize shareholder value by cutting costs and increasing margin. Winnebago does not strike me as a customer-focused firm that will go the extra mile to ensure customer satisfaction. I’ve not been a fan of their products. They lack experience in the premium segment of the RV marketplace.

Not a happy day for this Newmar owner. Except for one thing though. I suspect our resale value may go up once Winnebago starts driving synergies in the motorhome segment.

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