Accell Group refocuses with sale of loss making US businesses

The Accell Group has announced the sale of the worldwide registrations of the Diamondback, Redline and IZIP brands.

The loss making arms will be taken on by private equity firm Regent LP. In addition Accell and Regent agreed on an exclusive two-year US distribution partnership for the international Accell Group brands Raleigh, Haibike and Ghost.

The total consideration amounts to US$1 and a maximum contingent consideration (potential earn out) of US$15 million.

The US business is transferred per August 6th, 2019.

Following the sale of the Canadian brand registrations announced on July 12th, 2019, today’s announcement completes the strategic review of the North American operations and allows Accell to focus on its European (core) business.

Ton Anbeek, CEO at Accell Group said: “With this announcement, we have completed the strategic review of our North American business. This allows us to eliminate the profit dilution, while we can continue to
distribute our global brands to the US and benefit from the growing demand for e-bikes. We look forward to working with Regent as our US distributor and as global supplier of its sports brand Mavic.

The completion of the strategic review results in a one-off charge which the firm will absorb in H2 2019, who add that “we can now put our full focus on accelerating growth of our European core business.”

The financial impact of the refocusing strategy is summarised here:

The estimated H2 impact of the sale of the US business (-/- €46 million in EBIT and -/- €10 million in cash) covers the transfer of US trade working capital, main contractual obligations, the majority of personnel and the brand registrations1 for Diamondback, Redline and IZIP for a cash consideration of US$1. It also covers direct and indirect transaction costs (eg advisory and liquidation costs) as well as the loss on the intended sale of the US assets of Beeline. The potential benefit of the earn out arrangement, set as a % of EBIT in 2022-2026 with a maximum of US$15 million cumulative (contingent consideration), is excluded from the above EBIT and cash estimates.

As announced earlier, the sale of the Canadian brand registrations is estimated to contribute €14 million positive in EBIT and cash.

With the divestment of the US business and the earlier sale of the Canadian brand registrations, the North American operations can be considered as substantially liquidated, which results in a reclassification of the translation reserve of €8 million (loss) to the income statement.

The total overall 2019 impact of the steps taken in the North American business strategic review are estimated to have an effect of around -/- €40 million on EBIT and around + €4 million on cash. These effects will be absorbed in H2 2019 while we continue to operate within the current bank covenants.

Accell is well prepared for upcoming trends across Europe and further afield

Next to this and based on a first assessment, Accell currently expects qualification for the requirements of the Dutch liquidation loss facility to be probable. If the Accell Group qualifies this could result in a potential tax benefit of €15-20 million.

In H1 2019, the North American operations reported an operating loss of €11 million which included €2 million of allocated corporate fees. The firm did however increase its turnover by 8.8%, reaching 650.9 million Euro in the first six months.

With the agreement reached, the profit dilution of the North American business is eliminated from August 6th onwards.

Accell is notably well prepared for shifting consumer trends toward the adoption of electric bikes, cargo bikes and bikes fit for transport. In H1 like-for-like e-bike sales were up 16% and e-cargo bike sales up 47%.

D.A. Davidson & Co. acted as financial adviser to Accell in this transaction