ACM sells 44% of this Leica shares to Blackstone

Seems way too early to know what this is going to mean for Leica. Certainly it injects capital into the company (or into Dr. K's pockets). The big question is what he (or Leica) plans to do with that money.

Blackstone is a serious player in the world of investment. - one of the largest private equity firms in the world. They often go after troubled firms - but that certainly doesn't appear to be the case in this instance.

One thing is clear, now, however. Leica has a very large partner sitting at the table, with a voice in future business decisions, markets, etc.
 
Sarcophilus Harrisii said:
Not at all. Their more recent racing success is undeniable, but they do not have the same product differentiation from the glory days of the 1960s and early to mid 1970s. Their bikes were unique back then, in every way, particularly after the first twins arrived. Some enthusiasts would regard the acquisition by TPG as the beginning of the rot, as a proud (but flawed) name became a consumer commodity, plaything of the rich and movie stars, and a brand name to be applied to all manner of dubious accessories and merchandising, in a manner that verged on whorish. In short, their commercial success was assured, but they sold their soul to get it. God knows the bevel twins had their issues, but nothing the factory has made for twenty years, with the exception of the original 916, has an ounce of charisma compared to their 350D, 750 Sport, or first 900SS. Of all the once great Italian marques, only Moto Guzzi remains the genuine article, (and how they survived the desolation of the De Tomaso years I will never know).

I'm not sure how any of this translates to Leica, however and, you now have me pondering when we can expect to see a Ferrari-badged limited edition of the M9...dear oh dear.
Regards,
Brett
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as someone who owned and raced a 750 bevel twin (and owned a 350 single), i can tell you that the newer bikes are - to me - better in almost every way. they're faster, more reliable, hold their own better against the japanese bikes and have carved out a market niche. there are more models and the pace of innovation seems much faster. now, i will grant you that none are quite as sexy as a 750 sport or a 750ss, and that by going belt rather than bevel you lose something (if only the opportunity to put a sight glass on the top bevel gear casing) but i think the newer bikes are awesome. like, wicked awesome. there are a whole bunch of them i'd like to own. and, having worked on the neanderthal electrical system of a 1973 750 (ok, having NOT worked on it), i think there will be a lot fewer WHAT THE F*** moments with the new bikes.

i'd like to see leica do something similar. move the design forward while not losing touch with the past. you can't run the company on carburated bevel twins forever, and you can't rely on black MPs to make your business forever.

also, it's interesting to note that the old ducatis were really not great race bikes. they had a very slow steering setup and were a pain in the ass to move around. the new ones are as quick to steer as any japanese bike and have kept a lot of the v-twin advantages. this would be like, for example, having an OVF/EVF hybrid on an m10. the new sets of owners made a bet to appeal to performance, raised prices and created a great market for themselves.

private equity is hardly prince charming on a white horse, but in some cases it does work out. i'd like this to be a rejuvenator for leica.
 
It's a minority share. They DON'T get to run the company. My guess is that the money sharks have seen what Dr. Kaufmann can do, and want a part of it. A man who really cares about the product ain't gonna sell out. And he CARES.

Cheers,

R.
 
Roger Hicks said:
It's a minority share. They DON'T get to run the company. My guess is that the money sharks have seen what Dr. Kaufmann can do, and want a part of it. A man who really cares about the product ain't gonna sell out. And he CARES.

Cheers,

R.
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Purely out of curiosity, how old is Dr. Kaufmann?
 
jsrockit said:
Exactly...
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Not necessarily the case. All depends on their share structure and who has voting control. Ownership does not always equal voting control.

Lots of examples in the corporate world where a publicly traded company is controlled and run by a minority shareholder and this is certainly the case with private companies.

Blackstone tends not to be the type of company that invests in companies over which they do not have authority to manage.

Note that the structure and financial details of the transaction were not made public.

It's speculation but all you have to do is look at Blackstone's track record (and that of private equity investors in general) to get a sense of their raison d'etre.
 
for 44%, i bet they get pretty close to half the board representatives. germany, IIRC, has two boards - an operating one and an executive one. i think they take only executive seats but i'm really not at all sure about this. in any case, yes minority investment, yes not-quiet involvement.
 
Roger Hicks said:
It's a minority share. They DON'T get to run the company. My guess is that the money sharks have seen what Dr. Kaufmann can do, and want a part of it. A man who really cares about the product ain't gonna sell out. And he CARES.

Cheers,

R.
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This is true. Yet there is a vast difference between someone who owns a few hundred shares and someone who owns more than 40 percent of it. The first is easy to ignore. The second, not so much.

What we don't know are the terms and agreements surrounding the purchase. Blackstone didn't just walk in one day and plop down XX Euros in exchange for a piece of paper saying they own 44 percent of the company.
There is a plan behind it. It's just impossible to say what that plan might be. But it certainly signals that there could be some changes ahead.
 
http://en.wikipedia.org/wiki/Blackstone_Group

They're in the business of buying companies and re-selling, them after the balance sheet looks much better, at a a profit. Expect the profit margins to go up while the quality level comes down to an acceptable level, i.e. outsourcing labor, parts, etc. Hang on to your Made in Germany, Canada and Portugal bodies and lenses as they will surely go up in perceived value. Good for the collectors and aspirational users.
 
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Roger Hicks said:
Dunno. At a guess, late 50s.

He really is passionate about Leica.

I've only met him a few times, but that's more than most people on this forum. Either he's a bloody good liar, or he's sincere.

Cheers,

R.
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Thanks!

I don't doubt the sincerity. But if it's Dr. Kaufmann who's holding off the barbarians at the gates, it's sensible to wonder how long he might undertake that chore.
 
Leica is a relatively small company, so we probably won't see a ton written about this in the financial press.
Short story in Financial Times. Just references the move as being part of plan to fund Leica's expansion.

http://www.ft.com/cms/s/0/7eaceedc-fa2c-11e0-8e7e-00144feab49a.html#axzz1bGmGfrf7

And another in Marketwatch. Speculating that Blackstone paid about $130 million euros for its stake. Also suggests that Blackstone isn't after the entire company, as it typically would be when investing in a small firm.

http://www.marketwatch.com/story/blackstone-takes-minority-stake-in-leica-camera-2011-10-19

Maybe they can set up a second manufacturing operation with this infusion.
 
Roger Hicks said:
It's a minority share. They DON'T get to run the company. My guess is that the money sharks have seen what Dr. Kaufmann can do, and want a part of it. A man who really cares about the product ain't gonna sell out. And he CARES.

Cheers,

R.
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Roger, I'm sure you know, but it's important to acknowledge that the money sharks don't get to play in the Leica pond unless Dr Kaufmann as principal shareholder of ACM lets them in. And he wouldn't do so without a plan that's agreed by his board and Blackstone.

This wasn't a new stock offering, as I understand it. ACM sold existing shares to Blackstone. Where ACM deploys those funds is its business and anticipated as part of its business plan. At his age, it's perfectly reasonable to expect that Dr Kaufmann might prefer more liquidity than less. Some might say he's earned it ... and he may have ACM distribute some of those earnings (beyond the recently declared dividend). Alternatively, or at the same time, ACM may invest in expansion, more production capacity, etc. called for in the plan.

The usual cycle for private equity is to turn the investment in 3-5 years, I believe. For Blackstone to do so, assuming there is no provision for redemption by ACM, there'll have to be another buyer who'll buy at a price that will yield the return Blackstone expects. And so it goes in the equity marketplace. Leica's market cap is about 300M euros. For Blackstone to make a typical private money return, that market cap will have to be around 600M euros in 4-5 years. They'll need to appreciate about 15-20% a year to do it. In earnings terms, that's about 75M euros annually, or more than double what Leica just reported for their last fiscal year. A real challenge.

I find it heartening that Leica attracts private equity, personally. Whether Blackstone is less expensive or onerous than a bank, I hope to find out.
 
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monochromejrnl said:
Not necessarily the case. All depends on their share structure and who has voting control. Ownership does not always equal voting control.

Lots of examples in the corporate world where a publicly traded company is controlled and run by a minority shareholder and this is certainly the case with private companies.
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Any examples of a publicly traded company where this is the case? I'm just curious. Thanks.
 
jsrockit said:
Any examples of a publicly traded company where this is the case? I'm just curious. Thanks.
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It's often done through two-tiered shares. The New York Times and, I believe, the Washington Post operate that way. They'll have a Class B and Class A stock. Or they may call it "preferred" and "common."
In a nutshell, a preferred share may equal 10 votes, where a common share gets 1 vote.
So the smaller class of preferred shareholders have more control, while owning fewer shares.

Google is another example. It's founders own Class B shares, while they generally only sell Class A shares to the public. It helps them keep control of the company, while still gaining access to capital markets and the money that offers for growth.
 
MCTuomey said:
Roger, I'm sure you know, but it's important to acknowledge that the money sharks don't get to play in the Leica pond unless Dr Kaufmann as principal shareholder of ACM lets them in. And he wouldn't do so without a plan that's agreed by his board and Blackstone.

This wasn't a new stock offering, as I understand it. ACM sold existing shares to Blackstone. Where ACM deploys those funds is its business and anticipated as part of its business plan. At his age, it's perfectly reasonable to expect that Dr Kaufmann might prefer more liquidity than less. Some might say he's earned it ... and he may have ACM distribute some of those earnings (beyond the recently declared dividend). Alternatively, or at the same time, ACM may invest in expansion, more production capacity, etc. called for in the plan.

The usual cycle for private equity is to turn the investment in 3-5 years, I believe. For Blackstone to do so, assuming there is no provision for redemption by ACM, there'll have to be another buyer who'll buy at a price that will yield the return Blackstone expects. And so it goes in the equity marketplace. Leica's market cap is about 300M euros. For Blackstone to make a typical private money return, that market cap will have to be around 600M euros in 4-5 years. They'll need to appreciate about 15-20% a year to do it. In earnings terms, that's about 75M euros annually, or more than double what Leica just reported for their last fiscal year. A real challenge.

I find it heartening that Leica attracts private equity, personally. Whether Blackstone is less expensive or onerous than a bank, I hope to find out.
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couple things. it looks like it's new shares. existing (secondary) shares would come from existing share holders, with money taken home and put unter den mattress. new (primary) shares would be issued by the company and used for general corporate purposes. i can't believe that blackstone would cash out half of an existing investor's position. the press release is not entirely clear to me but these things are rarely (in fact, unless you're getting rid of management, it's like never) all secondary shares.

also, blackstone probably borrowed and put up maybe 1/4 to 1/3 (i don't know what the ratios are for european PE deals these days) of the total investment in equity. so, any return they make is levered.

a little very simple, back of the envelope math shows that a 10% increase in earnings every year for the next 4 years could generate up to a 5x cash-on-cash return for a company that looks like Leica and has a new 44% investor that's levered 4 to 1. so, blackstone wouldn't have to strip all cost out of the company for the deal to make money, and there might even be money for investment. of course, to make MORE money (and these guys generally like making more rather than less), cost would be stripped out by the carload.

even without supervoting stock, minority investors can control public companies with diffuse investor bases. you have a 15% block in a big public company, you swing a lot of weight. we don't know what their deal terms are, but it'll be interesting to see how many board seats blackstone gets. control the board, you control the company (unless, of course, you're voted out, which is never easy).
 
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tbarker13 said:
This is true. Yet there is a vast difference between someone who owns a few hundred shares and someone who owns more than 40 percent of it. The first is easy to ignore. The second, not so much.

What we don't know are the terms and agreements surrounding the purchase. Blackstone didn't just walk in one day and plop down XX Euros in exchange for a piece of paper saying they own 44 percent of the company.
There is a plan behind it. It's just impossible to say what that plan might be. But it certainly signals that there could be some changes ahead.
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You are of course absolutely right. My take is that they are betting on Andreas Kaufmann, rather than Andreas Kaufmann betting on them. His passion has beaten most money sharks' gambles.

Cheers,

R.
 
you put 130mm in, you're probably betting on the management. unless of course you're planning to throw management out. which happens. but this doesn't look hostile. (yet)
 
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