What you’re about to read is just my humble opinion.
It’s been 48 hours since we learned the shocking news that Textron has agreed to buy Arctic Cat for $247 million (plus existing debt), due to occur in the next couple of months provided that the shareholders approve the offer.
I say this was shocking news because the majority of Arctic Cat people – which includes employees, dealers and customers – weren’t expecting it. Selling the company wasn’t on the radar for many people.
Some people were not shocked at the news. They say that the writing has been on the wall, or more accurately the financial balance sheet: in the past 24 months, Arctic Cat has gone from a company with approximately $140 Million in the bank and essentially zero debt, to a company with approximately $10 Million in the bank and approximately $75 million in debt as of last fiscal quarter. I’m not a numbers guy, but I’m seeing an approximately $200 million swing from black to red.
There has been speculation for months that Arctic Cat was for sale, and that the only real uncertainty was who the buyer might be.
Yamaha? Harley-Davidson? Private equity?
Upon the announcement that Textron was buying, the many conversations with Arctic Cat people showed remarkable consistency. There is unanimous sigh and strong optimism about the brand’s future.
The people expressing this optimism range from high-level people within Arctic Cat, to dealers and more.
The reasons for optimism make perfect sense:
1. Arctic Cat will be purchased by a $13 billion dollar company. By comparison, Yamaha Motor Corp. is a $7.4 billion company; Polaris a $5.5 billion dollar company; Harley-Davidson a $10.6 billion dollar company; and BRP a $3 billion company.
With the financial backbone and diversification of Textron to support it, Arctic Cat could be far less vulnerable to the tumult of poor winters, excessive inventory and the like.
Moreover, the buying power afforded by a company the size of Textron (who produces oodles of E-Z-GO golf carts, for example) has the potential to lower prices from common vendors who supply things like batteries, clutches, headlights, tires, wheels, wiring harnesses, seat foam, plastic and the like. Lower pricing on supplies can enable lower pricing on retail units, higher margins, or both.
2. With the financial strength of a mother ship to support it, Arctic Cat could invest in an aspect of its business that would have been too expensive, or perhaps risky, when it stood entirely on its own. Ideas that occur to me are a full build-out of its state-of-the-art engine facility in St. Cloud, Minn.; a high performance 4-stroke engine program; a snowmobile that is sized and priced as the modern day equivalent to the 1970s Jag; a new category of wheeled vehicle; and full-scale dealer development and expansion.
3. Textron has a long history of acquiring companies, then making them financially strong, rather than gutting them of assets and discarding the rubble. And this is consistent with the message that both Arctic Cat and Textron expressed during the announcement. The exact words are:
“Arctic Cat will become part of Textron’s Specialized Vehicles business, maintaining its iconic Arctic Cat brand, as well as its current manufacturing, distribution and operational facilities, with a focus on growing the business.
“Textron plans to build on Arctic Cat’s strong brand and history of innovation. We expect many Arctic Cat employees to benefit from expanded career opportunities as part of a larger, more diversified company.”
I’m very much encouraged by the fact that Textron’s Bad Boy UTV line is produced domestically in the U.S. Same for E-Z-Go and Jacobsen (including Dixie Chopper) vehicles.
Of course, there are some reasons to be guarded. And I can understand being worried. Textron has said very little at this point. The deal hasn’t yet happened. And we don’t know what decisions will be made once new leadership evaluates Arctic Cat from the inside, rather than from the outside as they’ve done up to this point.
It remains to be seen what exactly Arctic Cat looks like as a company 6 months, one year and five years from now. There is tremendous uncertainty for many people right now, about whether they will be part of the new Arctic Cat going forward. I’m one of those people.
I have no uncertainty or worry about Arctic Cat dealers and customers. The conversations I’ve had with Arctic Cat dealers who already sell Textron products tell a very positive story. Under Textron ownership, I see an Arctic Cat that is less likely to force product into dealership inventory, for the simple reason that it will have the financial backbone to withstand the forces that compel most powersports manufacturers into this self-destructive practice.
And for us loyal customers, I see a new horizon with an even greater emphasis on quality that has come to define Arctic Cat in recent years. Arctic Cat could have delivered its C-TEC2 8000 engine a year ago, but it waited until it could fully test a new supplier for a critical component. The Arctic Cat of five or ten years ago might not have shown such restraint. I see an continuation and, perhaps, an amplification of that mindset with the new ownership.
I know that many of us desire greater and more frequent improvements in technology on the machines we buy, particularly snowmobiles. We point to the long history of Arctic Cat machines being the biggest and fastest, with the most aggressive evolution.
My sincerest hope is that the new Arctic Cat will retain that legacy, but only if it means no compromise in quality. How it tackles these kinds of decisions will ultimately define its future.
I’m optimistic, and hope to be a part of it.
Final thought for now: Arctic Cat has been a standalone company for 55 years, with no mother ship to support it. That’s an astounding run. There’s a part of me that’s saddened to see this run come to an end. But there’s a bigger part of me that hopeful for what the future will bring. I have such tremendous respect for, and faith in, the people at Arctic Cat whose passion runs deep. Their talent and dedication are the lifeblood of the brand. Given the right tools and resources, they will lead us into another half-century that’s even better than the first.
Thanks for reading.