Xtreme buys majority share of Snorkel
By Murray Pollok20 September 2013
Snorkel is to return to US ownership with a deal that will see majority ownership of the business transferred to Las Vegas based Xtreme Manufacturing, with Tanfield retaining a 49% share.
Xtreme is the telehandler manufacturer owned by Don Ahern, also owner of Ahern Rentals in Las Vegas.
Under the deal, loss-making Snorkel will be transferred to a new company, Snorkel International Holdings, with Tanfield retaining a 49% share. Subject to Snorkel making profit targets within five years Tanfield will be paid US$50 million. Tanfield’s share would then fall to 30% and it would have the option to sell that remaining share at a 5.5 EBITDA multiple.
Tanfield's shareholders will vote on the proposal as a general meeting on Monday, 7 October.
Tanfield’s chief executive, Darren Kell, along with the managing director of the powered access division Brendan Campbell and finance director Charles Brooks, will leave Tanfield and join the new Snorkel business.
Tanfield said in a statement; "Given the requirement for a significant working capital injection into the Snorkel division to deliver its recovery plan, it became clear that an outright sale could only be at a price that reflected this need.
"Therefore, the Board considers that...an acquirer or investor that is willing to fund the Snorkel division's recovery, whose own business is in a related industry that will support that recovery, and who is also willing to allow Tanfield to benefit from the recovery upside, is preferable to an outright sale."
The deal will see Xtreme invest between $35 and $50 million on a recovery plan. The strategy will be for Xtreme to use Snorkel’s global sales network to boost exports of its telehandlers, while Snorkel’s volumes will be increased by sales to Ahern Rentals, historically one of its biggest customers.
In recent years shortage of working capital has constrained Snorkel’s ability to exploit opportunities in the powered access market. It made losses of £14.6 million in 2012. Tanfield said the structure of the agreement would give Snorkel the opportunity to grow, with Tanfield having a potential benefit after recovery of the business.
The sale follows six months of speculation about Snorkel's future, with Tanfield saying in February that it was investigating a possible sale.
Xtreme is potentially a good owner for Snorkel in that it has complementary products - telehandlers - and close links to its sister company Ahern Rentals, one of the largest rental companies in the world, with revenues last year of €268 million.
However, Ahern Rentals was until several months ago in Chapter 11 bancruptcy proceeding. The business entered Chapter 11 in December 2011 and there was considerable uncertaintly that Don Ahern would be able to retain his ownership of the business in the face of competing reorganisation plans by major creditors.
Ultimately he succeeded in getting his own reorganisation plan through and the rental business has been performing well over the past 18 months as the US rental market continues to recover.
Tanfield said in its statement that Ahern had been a major customers of Snorkel until recently, but has stopped buying because Snorkel was unable to meet order and delivery requirements.