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This is based on an article which ran in the hard copy edition of the Globe and Mail recently, but which wasn't available online.

I'm typing it out to get it here. This is one reason I check both the hard copy and online sources because in my experience, many publications put only some of their stuff online.

The article was entitled, "Bombardier Toy Shop Destined For IPO". It was written by Andrew Willis and ran in the August 28-03 edition. I thought it interesting because it offers a little insight into how the company works, and how effectively management deals with such situations.

"With the sale of Bombardier's recreational products division now complete, start the countdown for an initial public offering from the Sea-Doo and Ski-Doo maker.

In keeping with the wishes of chief executive officer Paul Tellier, the market leader in snowmobiles and other toys was sold to a financial player, Bain Capital, backed by the Bombardier family and the Caisse de depot et placement du Quebec.

Mr Tellier pushed for a private equity fund - such as Bain - as suitor because his cash-straped company needed a quick, clean sale, with no regulatory issues such as Competition Bureau clearances. In doing so, the CEO pretty much guarantees that Ski-Doos are rolled out as a commonstock IPO within two to three years.

The family, and the Caisse, are here for the long run. The family obviously has strong emotional ties to the snowmobile factories that are at the root of their fortune. The Quebec pension fund is going to want a role in a solid business that's also a cornerstone of the provincial economy, and major employer.

But Bain Capital's her for a good time, not a long time. They will want to cash out on an investment that runs to the hundreds of millions. An IPO is the only logical exit, as the Bombardier clan is unlikely to concede their influence in the company in the near future.

Here's what the pitch on Ski-Doo stock will look like, and why the numbers should work Bian Capital's way.

Bombardier just sold its recreational products division for segen times last year's earnings before interest, taxes, depreciation and amortization, or EBITDA. That's the key number as, in the short term, profit will get eaten up by the cost of servicing the debt taken on in this leveraged buyout.

This business still has room to grow. In two product lines, snowmobiles and those annoying buy way-too-fun personal watercraft, Bombardier is the market leader, with a 40% share. That means the company can command something of a premium from investors. But in its two other major units, all-terrain vehicles and outboard motors, Bombardier is in the midst of a start-up and a trunaround, respectively. Each unit is building from a base of 10% of the market.

Bain Capital, and partners, will try to beef up sales of Boat motors and ATVs, hopin in part to ride an improving economy, and increased consumer spending on toys. They will try to wring better preformance out of Sea-Doos and Ski-Doos, maintaining market leadership.

If everything works out, the recreational products division can be petitioned as an industrial growth story in a Canadian market that's lacking in this type of play. What kind of price would such a story fetch?

There are two easy comparisons to this company, Polaris Industries and Arctic Cata. Both are publically traded concerns that make snowmobiles. Polaris is twice as large as Bombardier, while Arctic Cat is one-third the size. Polaris changes hands at more than 10 times last year's EBITDA. Arctic Cat fetches a premium of 9.8 times EBITDA.

If Sea-Doos and Ski-Doos start to command the same public market multiples as Arctic Cats and Polaris products, Bain and friends can write a cheque for $1.23-billion now, and dream of selling a stake in this company in an IPO that values the company at more than $2 billion."

Bombardier's recreational division is likely to be a very well-managed company. It is entering some very interesting areas with its purchase of the Evinrude and Johnson outboard motors division. It makes motorcycle engines, and it makes an award-winning All Terrain Vehicle, Sea-Doos, and Ski-Doos.

Someone commented to me recently that Bain's average holding period was 5 years - not 2 or 3. In any event Bain is not likely to stick around for the long haul. So for any of us interested we might want to keep our eyes open, and a little powder dry.


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