American Motorcycle Dealer AMD 216 July 2017 | Page 6

Contined from page 4
HEY, HARLEY – LEAVE
DUCATI ALONE …
Reuters) are way off beam. I think, or certainly hope, that there is big fat zero
chance that anybody connected with Harley-Davidson would be thinking that
splashing something in the order of $1.5 to $2.0 billion on trying to prise Ducati
away from the Volkswagen Audi Group (VAG) at this time would be anything
other than swallowing a suicide pill - it simply would not end well for either party.
here are dozens of reasons why it would be the dumbest of dumb ideas since
King Dumb had his own first dumb idea. It would be akin to hitting every
branch of the Dumb Tree on the way down to the big pot of dumb and being
basted in dumb sauce.
Not only because of the engineering and competitive pressures that would
immediately swamp the Milwaukee balance sheet, but because of the very
problem that I have been describing – debt.
Assets, all assets, of all kinds, are currently highly overvalued. From real estate
and IP through to equity, bonds and share values
– all assets are currently unrealistically overpriced.
This has happened because of a decade of easy
money (“quantitative easing”, aka “fiscal
stimulus”) and cheap money (record low interest
rates). It isn’t necessarily because someone
somewhere thought “I know, lets abuse the
policies that were designed to get us out of a debt
crisis to create another one”, it is simply that those
polices have always carried within them the seeds
of potential destruction for the very issues they were designed to resolve.
That is a law of inevitable consequence (how, conceivably, can creating debt to
resolve debt be sane?), and right now, any corporation which thinks it might be
a good idea to leverage themselves in order to buy a business that does
something that they themselves lack the competency to do, will be squished by
the laws of economic gravity.
arley has hired Goldman Sachs (aka the ‘Vampire Squid’) to advise them on
a possible deal to buy Ducati. VAG is looking for an eye watering EBITDA
multiplier of around 15 times the estimated 100m euro that Ducati returned to
the VAG balance sheet in their last full financial year (and around 3 times total
revenues). In all probability Goldman Sachs are going to not only recommend
such a price to Harley but, as any investment bank worth its salt would quite
naturally do, avail themselves of the vast profit opportunities that assisting a
hapless buyer to facilitate such a deal would yield.
My message to Harley-Davidson is caveat emptor, this is the wrong deal at the
wrong time. They should take no notice of whatever Goldman Sachs tell them,
pay up the bill they’ve run up so far and walk away.
If, as appears highly likely, Ducati is on the block despite VAG’s protestations to
the contrary, then they should leave it to the likes of KKR, Permira, Indian
conglomerate and KTM business partner Bajaj, or former Ducati owner
Investindustrial. If the likes of BMW, Honda and even Suzuki have been smart
enough to look the other way – then so too should Harley.
The deal that VAG are seeking would mean that they will have doubled their
T
money in their five years of ownership. VAG is being advised by “investment
boutique” Evercore, and it is thought that tentative bids are being sought in July,
in response the sale prospectus that has been sent to potential suitors; though
it is reported than any deal may not be confirmed until towards the end of the
year.
Quite apart from seeing acquisition as a quick fix to its own ailing sales, Harley
are no doubt eying Ducati’s game changing and much imitated launch of the
Scrambler some three years ago as being among the tempting opportunities that
Ducati brings to the table (and somewhat the Diavel) and, relatively speaking, in
technology terms, a primary point of synergy between the Milwaukee, USA and
Bologna, Italy based manufacturers; that and having popular museums, I guess.
Whereas most of the Ducati offer requires design and engineering, electronics
and production engineering skills that are way in advance of anything Harley
appears to have in its locker, a “scrambler” is essentially a ‘Bobber’ with
knobblies. However, if Harley themselves cannot productionize such a simple
beast, even by buying in a suitable engine, then they certainly are NOT in a
position to own, manage and guide a business that is.
s it happens, in broad terms, seeking solutions down the M&A route is not,
in principle, a bad or wrong solution for Harley. I have said many times that
they should buy before they get bought. But Ducati? Where’s the institutional
memory, and don’t Harley have more than
enough Union issues of their own without
landing back into another deal in Italy – the
mothership of Union regulation and
intransigence.
Harley tied to buy Ducati in 2007 before
eventually lighting upon MV Agusta in 2008,
which, $200m lighter, Harley sold back to the
prior owners for one euro a year later. Indeed,
Harley had been on the M&A trail for a decade by
then. The