Textron Inc. has agreed to buy Arctic Cat Inc. in an all-cash transaction valued at approximately $247 million, plus the assumption of existing debt, the companies announced yesterday.
The purchase price is $18.50 per share, a 40.7% premium to Arctic Cat’s closing price on Jan. 20.
It is unclear, as yet, how the acquisition will affect Arctic Cat’s lender partners, which include Sheffield Financial for retail loans and Wells Fargo Commercial Distribution Finance for commercial loans. Even so, it is unlikely that any changes will materially alter the OEM’s financing operations, said an analyst, who preferred to remain unnamed.
The acquisition is partially due to increased OEM competition, as well as to Arctic Cat’s drive to capture marketshare and grow its dealer network, the analyst told Powersports Finance. Specifically, Arctic Cat’s ATV and recreational off-road vehicle sales have been on the decline, falling 38% year over year to $44 million in the quarter ended Sept. 30, 2016. Including snowmobiles and parts, garments, and accessories, overall net sales were down 22% year over year, to $164.6 million.
In 2015 and 2016, as the market became “choppier and more volatile,” incentives amplified “significantly,” the analyst said.
Arctic Cat is “keeping a really close eye” on dealer inventory, Chief Executive Chris Metz said during an earnings call in November 2016. The lack of dealer capacity, combined with Polaris Industries Inc.’s recalls and subsequent incentives in 2016, placed Arctic Cat in a position where it was being outsold by Polaris.
Polaris Industries Inc. made several recalls throughout 2016, which was very “disruptive” to the OEM and the industry overall, the analyst said. “One thing that came after the recalls, Polaris got aggressive with finance incentives and made the Arctic Cat product look less appealing because of the price,” he said. “You can buy better machine for the same or less amount with Polaris’ finance incentives.”
Arctic Cat took a step back and analyzed ways for it to capture more marketshare, the analyst said. “This Textron offer came along, and they said that was best way to compete, you have bigger pockets backing you now,” he added. “Sounds like Textron is committed to Arctic Cat’s strategy, and they have good strategy at Arctic Cat, but the market turned at the wrong time and they don’t have the resources to compete.”
Arctic Cat will provide details of the transaction to shareholders no later than Feb. 7. Arctic Cat will become part of Textron’s specialized vehicles business, maintaining Arctic Cat’s current manufacturing, distribution, and operational facilities, with a focus on growing the business, according to the release. The transaction is slated to close in March, subject to regulatory approval.
Meanwhile, an Arctic Cat spokesman declined comment on the acquisition, noting that the company is in a “quiet period.”