If you’ve got a good invention in the cycle trade, don’t be surprised to get a call from someone at SRAM to meet up one day. Whether it’s over lunch or dinner a takeover deal might be on the menu. That’s what’s happened to Quarq, SRAM have just announced a deal to buy the US power meter company. It’s the latest in a line of deals by SRAM, from Sachs to Zipp.
Debt and dealmaking
SRAM started with an innovation known as Gripshift, a new way to shift gears on a mountain bike that was very popular in the 1990s. Today it’s grown massively with revenues in excess of US$500 million. A lot of this growth has come thanks to debt and acquisition. The company has followed a pattern of borrowing money to buy up companies to build a corporate empire focussed on bike components. Along the way it’s snapped up the likes of Rock Shox, Truvativ, Avid and Zipp. All this on top of the key founding deal to buy Franco-German company Sachs, which itself owned Sedis and Huret.
The company has attracted a lot of financial interest and had 20 banks and private equity companies wanting to get involved before picking US bank Lehman Brothers and Lance Armstrong even invested at the same time. The bank famously collapsed and just as the deal was inked but this had nothing to do with SRAM nor the private equity arm and the investment still stands.
The bank that financed SRAM was spun out, it’s now known as Trilantic Capital Partners. Again this involvement has provided ready capital to fund new deals.
In a growing market dominated by Shimano and Campagnolo, both somewhat sleepy companies, there’s long been room for a third player to shake things up and the growing market for bike sales provides even more opportunities. We’re also seeing the likes of FSA expanding too, they are hoping to offer a full groupset soon.
This deal making turned a small start-up into an established manufacturer, able to supply a majority of parts, from cranks to brakes to wheels. And now power meters.
Quarq itself is a classic start up tale. As summarised on their website, it was started by two people looking to fix a problem. Jim Meyer wanted a power meter but couldn’t afford it. An engineer he realises that the technology isn’t that complicated and starts working on some designs. Meanwhile wife Mieke finishes her MBA. The couple apply their skills and within no time they start manufacturing and selling sophisticated bicycle components. Today they’ve got 20 people and a factory dog called – what else? – Sir Isaac Newton Meter.
What next for SRAM?
Obviously we’ll soon see SRAM-branded power meters and I suspect a bike computer or display unit to match as well.
I’ve said before I think SRAM are making an electronic groupset, providing a few dots to join up. To counter the rumours, SRAM had tasked a marketing agency to promote mechanical shifting, using arguments like the following:
SRAM believes the bicycle is a pure, leg and lung-powered expression of utter simplicity and grace. And using a battery to power an essential part of the experience just isn’t right. Or necessary…
…Furthermore, electronic shifting is so specialized and boutique that if you break it, you can’t always get service or replacement…
…Instead of adding benefit, all it really adds is a layer between you and the bicycle. An insulated, muffling, experience-robbing layer of “Rolls-Royce automatic cushiness” – when the essence of cycling has always been about the “Culture of Mechanical” – AKA the raw, tactile connection of the human animal to a beautiful, efficient, analog machine
The same marketing brief also calls Shimano’s electronic shifting groupset Di2 “geeky”. Now I don’t know about you but a lot of the arguments above aren’t exactly supportive of sensitive strain guages on a bike and electronic displays flashing up wattages aren’t quite about the simple joys of cycling either. At the very least this means SRAM will have to refine the marketing message but it could also be another dot to join in the tale of electronic shifting. Remember this was a company that started thanks Gripshift, its DNA is all about innovative shifting.
Onwards and upwards
That’s speculation but the fact is that SRAM is growing from strength to strength. It already sponsors more top pro teams than Shimano and Campagnolo. It’s getting a big slice of the wider market, both on and off road. I wouldn’t be surprised to see more deals, there are even some suggestions for the next target. But it’s worth noting the company is increasingly driven by financial imperatives, it has debt to service and it’s getting more and more distant from the start-up it too once was. That’s normal but I just hope it’s not laden with too much debt as this can prove tricky if things don’t turn out right.