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Ski-Doo maker Bombardier Recreational revs up for IPO

A member of the Serbian special police force patrols the village of Lucane on a Ski-Doo

GORAN TOMASEVIC/Goran Tomasevic/Reuters

Bombardier Recreational Products is steering for the public market, giving Canadians the chance to buy into the manufacturer of Ski-Doos and the Can-Am Spyder three-wheeled motorcycle for the first time in a decade.

The company, now named BRP Inc., filed a preliminary prospectus on Tuesday for an initial public offering that is expected to take in $250-million, according to a person familiar with the deal, and will begin marketing the offering in the coming weeks.

It is the first time since 2003 that public investors will be able to plow money into the company. Bombardier's recreational products division was spun off and privatized in 2003 by a consortium led by Bain Capital and including the Beaudoin and Bombardier families, and has been held privately since.

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Typically, private equity investors such as Bain prefer to hold their investments for five to seven years and then either sell them to another private investor, or exit through a public offering. However, BRP's "liquidity event," as it is known on Bay Street, has been delayed for years because the company hit a rough spot in the aftermath of the financial crisis, when fewer consumers wanted to purchase new snowmobiles and watercraft.

Since 2011, BRP has massively restructured, including sending more of its manufacturing to Mexico, and slashed the sales of some products in order to re-tool. With costs under control, the company's net income is rebounding nicely, and revenues are rising as the U.S. economic recovery continues.

When Bain and its co-investors first bought the recreational products business from Bombardier in 2003, they saw revenues and cash flow soar leading up to the financial crisis. But from January, 2008, to the end of fiscal 2010, adjusted earnings before interest, taxes, depreciation and amortization plummeted by 56 per cent and in fiscal 2011 the company brought home just $35-million of its $2.1-billion in revenue.

In response, BRP invested in its Mexican manufacturing plants and expanded its low-cost country sourcing. It also slashed overhead costs and decided to stop manufacturing sport boats, judging growth of that product line to be too sluggish.

The turnaround is now bearing fruit. Net income came in at $121-million last year, and there's been particularly strong growth in the U.S., where revenues of $1.2-billion last year were up 56 per cent from fiscal 2011. The potential for more growth is strong as the U.S. economy continues to recover.

However, this isn't the easiest time to go public. The S&P/TSX Composite index took another triple-digit loss Wednesday, and plummeted over 300 points on Monday.

BRP spokesperson Pierre Pichette said filing the prospectus is simply the start of a long road that will include a marketing roadshow. "This is only the beginning of the process," he said. "We're starting the process and we'll see how it goes."

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While BRP is offering Canadians the chance to invest in the turnaround, the private equity backers are not relinquishing their control of the company. The shares being offered are subordinate voting shares, which come with one vote each. The existing private owners will keep their multiple voting shares that offer six votes each, meaning they will continue to have "a significant influence on the company," according to the prospectus.

The proceeds will be used to clean up the balance sheet and pay back debt, even though the company just paid out $376-million to its existing owners.

And prior to closing, BRP "expects to pay to its shareholders an additional dividend of approximately $155-million." These distributions come after the private backers were paid dividends worth $310-million in 2006.

Public investors who buy into the IPO will not be entitled to dividends.

(Tim Kiladze is a Globe and Mail Reporter.)

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About the Author
Reporter and Streetwise columnist

Tim Kiladze is a business reporter with The Globe and Mail. Before crossing over to journalism, he worked in equity capital markets at National Bank Financial and in fixed-income sales and trading at RBC Dominion Securities. Tim graduated from Columbia University's Graduate School of Journalism and also earned a Bachelor in Commerce in finance from McGill University. More

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