Looks like Enve is being sold to private equity.
Good, bad, neutral? IDK
I blame hookless though!
The new principal is an avid cyclist, already owns ENVE products, and has had an interest in acquiring the brand for a few years. Those are all good things.
Btw, in addition to wheels ENVE also makes 4 different bikes, bars, stems and a bunch of other items…
Seems unlikely to be positive for consumers. PE companies generally operate for cashflow, so you’d have to guess capital expenditures (R&D) will be minimized and prices will be maximized.
Seems unlikely to be positive for consumers. PE companies generally operate for cashflow, so you’d have to guess capital expenditures (R&D) will be minimized and prices will be maximized.
While the stereotype is probably well-deserved, that doesn’t necessarily mean every PE strategy follows the “bleed it slowly dry then discard the husk” model. When the cyclist principal guy talks about plan for growth, I’ll take it as a good-faith intent, not just the usual PR-talk. (though it is pretty close to the standard PR-talk).
On the other side, are more boutique brands in trouble? I read that Rapha is closing up shop in the U.S. Quite a retreat.
And I’m undermining my own argument on that one because Rapha sold to a PE firm with U.S.-based cycling enthusiast principals. The Walton bros.
From a PE acquisition article of 2019.
“Speaking of the Walton brothers, who are both keen cyclists, he said: “They have deep pockets and they are backing the business.—
Oops.
Seems unlikely to be positive for consumers. PE companies generally operate for cashflow, so you’d have to guess capital expenditures (R&D) will be minimized and prices will be maximized.While the stereotype is probably well-deserved, that doesn’t necessarily mean every PE strategy follows the “bleed it slowly dry then discard the husk” model.I’m pretty sure that the PE business model is to buy a company, improve it somehow, and then sell it for profit. If they bleed it, they risk losing their investment.
I wouldn’t worry unless the PE firm has a reputation for screwing things up.
It’s not good news. PE is beholden to it’s share holders and only it’s share holders. They will do whatever makes the most money for them. They WILL cut costs, increase prices, etc… to maximize EBITDA. They will hold it for 4-6 years and then sell.
I heard Scott was going under pretty soon the other day.
If they bleed it, they risk losing their investment.
I meant “bleed” more in the sense of killing off domestic fabrication for cheaper foreign fabs, which cuts labor and capital costs a ton, stopping all development on “side projects” like bike frames. Boosts quarterly numbers enough to make it attractive in sale. But is not the same Enve by the end.
It’s not good news. PE is beholden to it’s share holders and only it’s share holders. They will do whatever makes the most money for them. They WILL cut costs, increase prices, etc… to maximize EBITDA. They will hold it for 4-6 years and then sell.
well yes, but you can largely say the same about any company. it all depends what the drivers are for the shareholders. the only thing is that hte more shareholders there are, the less likely they will all be altruistic cycling enthusiasts willing to compromise profits for any greater good or even long term gain.
the cycling industry is in trouble. if nothing else, it is good to see investment coming in rather than another company closing down
I heard Scott was going under pretty soon the other day.
Scott Europe and Scott America certainly have their communication problems. I know a few US based Scott reps quit over the last 30d
I meant “bleed” more in the sense of killing off domestic fabrication for cheaper foreign fabs, which cuts labor and capital costs a ton, stopping all development on “side projects” like bike frames. Boosts quarterly numbers enough to make it attractive in sale. But is not the same Enve by the end.Enve is about a $35M company that probably produces around $5M/year in net profit. It probably cost PV3 around $100M to buy them. $5M annual return on a $100M investment is a pretty crappy return. So, the only way they come out ahead is if they improve the company in a way that generates a lot more than $35M/revenue while also maintaining or improving margin %; otherwise they lose a lot of leveraged investment. So, I could see them doing something like merging it with another brand or investing to grow revenue. But if they cut costs, quality, and performance, that dilutes the revenue and net profit and could kill the value of the company.
Looks like Enve is being sold to private equity.
i am pretty much 100 percent not a fan of private equity in our sport. but is this private equity? it looks more like family money with a cycling habit buying a brand it admires, kind of like the walton family’s interest in cycling companies. but i might be wrong. i know almost nothing about this buyer.
So, I could see them doing something like merging it with another brand or investing to grow revenue. But if they cut costs, quality, and performance, that dilutes the revenue and net profit and could kill the value of the company.
I don’t know much about Enve. As an aside, my point was it may not go the way of stereotypical PE acquisitions, which the sterotype is to dramatically cut costs, then flip. So you don’t have to convince me that the strip-and-flip is unlikely.
Agreed it’s better that going under, but I’ve got quite a bit of experience in the PE ring. Their target profits will be higher than with corporate America or privately held. Whether or not the CEO is an avid cyclist will not change that. It might make them make better short term decisions, but their pricing will be going up, and they will resell in about 5 years. Also don’t expect anything that will take 4-5 years to have a financial reward for them.
Privately Held > Corp >PE at least in my book.
It’s a family office, which is a vehicle for private investment. They’re different than PE firms, which generally create a fund with limited partners (investors) and expected ROI over a period of time.
That’s very different that PE, and will most likely be good for Enve as they will have a much longer term vision. Much more like a private owner.
Agreed it’s better that going under//
But were they going under? I mean if they are making 5 million a year, seems like it was pretty much a going concern, and perhaps the owners were just ready to cash out on all the sweat equity they built. And a 100 million price, is that real or just a guess?? Seems a bit high to me, but perhaps the buyers were more motivated than the sellers to get this company, and thus paid a big premium…
I’ll just take a moment to applaud HED wheels for taking a different approach than Zipp and Enve. Of the three classic American aero wheel brands. And I’m not talking hookless. Funny how they each took a distinctly different path.
Though I don’t think any of the three have yet lost their soul. All the hand-wringing over hookless aside.
Although different than PE and without the 2 and 20 model, the goal is the same: maximize return on investment. Perhaps they will have a longer time frame than PE, which is rarely more than 10 years.
Also, a post said that net profit at Enve is about $5 million on $35 million in sales. That seems high to me. That would mean an operating profit before tax of between 15% and 20%. I would expect operating profit in this highly competitive and currently stagnating market to be much lower - 10% or less.
Although different than PE and without the 2 and 20 model, the goal is the same: maximize return on investment. Perhaps they will have a longer time frame than PE, which is rarely more than 10 years.
Also, a post said that net profit at Enve is about $5 million on $35 million in sales. That seems high to me. That would mean an operating profit before tax of between 15% and 20%. I would expect operating profit in this highly competitive and currently stagnating market to be much lower - 10% or less.
ENVE products tend to be priced at the very high end of range, so if anyone has a decent profit margin it would probably be them.
Honestly I don’t see how this works. The successful model in the bike biz seems to be to buy a number of smaller comapnies and create an ecosystem. So PON buys about 8 majpr bike brands and controls a huge chunk of the high-end market for just about any discupline. This probably allows them to combine/share some of the engineering, advertising, distribution,… functions. The bike brand Triopoly of PON/TREK/Specialized also helps keep prices higher. The other example is SRAM, which has aquired their way to being able to provide everything but the frame and tires on just about any bike.
How ENVE fits into any successful business model is beyond me, Building out their frame line would require a number of different bikes to compete with other brands. That would require a decent investment with an uncertain return (can they really build up the volume with the all the current competition?). Seems to me that the most likely result is that they close down the US design and manufacturing, move as many function to China as possible and hope they can maintain their reputation as a premium brand.