Component maker SRAM has announced it is going to float on a US stock exchange, that its current owners are selling the business and new shareholders will be able to buy a slice of the company.
When a company does this it has to give comprehensive information in a prospectus so that investors can get a picture of what they might be buying in to. This document runs to hundreds of hundreds of pages and it’s mostly a dull read. But here are some snippets worth sharing:
- SRAM operates in a part of the sector it describes as “mid to high-end bikes, ranging in price from $300 to over $10,000” and adds “we believe this is the highest margin segment of the bicycle component market“.
- They reckon bike prices will go up as new technology appears. My interpretation is that they will aim to sell power meters and more carbon wheels with a “normal” race bike.
- Sales in 2010 exceeded US$500 million.
- Profits were US$50 million for the same year.
- The balance sheet shows a significant amount of debt, some US$227 million.
- The company spent US$40.6 million on sales and marketing last year.
- The spend on product development was US$37.2 million with 280 people involved in this area of the business.
- SRAM employs 2,200 people across 15 facilities around the world.
- Note the careful mix of locations with several low tax bases evident.
- SRAM say “We currently do not offer an electronic drivetrain system“.
- The company has about 550 patents.
- Amongst the potential risks to the company’s outlook are product recalls but also the chance of a high profile product failure from a sponsored team, ie a fluffed gear change in the Tour de France.
- Another identified risk is the UCI, whereby product approval and regulations are concerned.
- Zipp wheels are described as “ultra-premium priced“, reassuring for investors perhaps but it’s a nice euphemism, no?
- That’s SRAM’s view of the bike market, with the company supplying both bike shops and bicycle companies like Giant and Trek.
- SRAM sees the bike market growing and they want a larger share of this expanding market.
- Boss Stanley Day took home $514,395 last year.
Reading between the lines SRAM is frequently saying, in a discreet way, “we make juicy margins” and “there’s not much competition in this market”. Given all this, you might prefer to invest in the shares rather than buy some components but as ever, buyer beware.