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Winnebago Industries' Acquisition Is Transformative

The narrow-moat motor-home manufacturer's purchase of towable-maker Grand Design will increase total company revenue by more than 40% from fiscal 2016 levels.

Securities In This Article
Winnebago Industries Inc
(WGO)

Winnebago will issue $105 million of new shares as part of the consideration, take on $353 million in debt, and pay $42 million from cash on hand excluding transaction costs. This new debt results in our weighted average cost of capital declining to 7.5% from 9%. We have long spoken highly of Winnebago’s debt-free balance sheet, but after the deal closes by the end of first quarter fiscal 2017 management estimates total liquidity of $75 million including over $50 million of credit line funds available, so we are not concerned about the new combined company’s health.

This deal is the type of action the board wanted when it changed CEOs. Grand Design’s over $400 million of towable revenue, 14% EBITDA margins compared with Winnebago’s 7.4%, and towable fifth wheel market share of over 9% immediately makes Winnebago a much larger company and gives it more diversification from motor homes. Grand Design appears to sell in a more premium segment than some other towables, which enables it to have strong margins. Combined revenue will be about 37% towables compared with about 9% towables currently for Winnebago. Management expects cost synergies via purchasing and eliminating processes to be $7 million, phased in over three years.

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About the Author

David Whiston, CFA, CPA, CFE

Strategist
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David Whiston, CFA, CPA, CFE, is a strategist for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He covers the automotive industry, including dealerships, parts manufacturers, and automakers. He has covered the automotive industry since joining Morningstar in 2007.

Before Morningstar, Whiston spent four years in PricewaterhouseCoopers’ New York real estate audit practice and one year in its Chicago office working on real estate acquisition due diligence.

Whiston holds a bachelor’s degree in business administration with a concentration in accounting from the University of Richmond. He also holds a master’s degree in business administration with concentrations in finance, economics, and organizational behavior from the University of Chicago Booth School of Business. He holds the Chartered Financial Analyst® designation, and he is a Certified Public Accountant and a Certified Fraud Examiner. In 2012, he ranked first in the specialty retailers and services industry in The Wall Street Journal’s annual “Best on the Street” analysts survey. He ranked first in the same industry in 2011.

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