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This article was published 21/6/2013 (1071 days ago), so information in it may no longer be current.
New Flyer Industries continues to solidify its position as the driver of the North American urban bus market with the purchase of North American Bus Industries Inc. (NABI).
The Winnipeg bus-maker has paid $80 million for NABI, the Alabama company that's about one-third the size of New Flyer and has about 10 per cent of the North American market compared with New Flyer's 32 per cent.
The deal follows New Flyer's acquisition earlier this year of the parts business of Orion Bus, another manufacturer that wound down its business earlier this year. Both deals came after New Flyer received a $116-million cash infusion from the Brazilian bus-maker Marcopolo, which now holds a 20 per cent equity stake in the Winnipeg company.
The second half of that payment will be used for the NABI acquisition.
'When you add the portfolios together, we can compete and bid on a lot more opportunities'
New Flyer CEO Paul Soubry said the plans are to continue to offer NABI's low-floor bus and rapid-transit bus models under the NABI brand. The plan is to continue to operate NABI's parts-distribution centre in Ohio and a service centre in California.
Soubry said the addition of the American company will mean additional profits for New Flyer immediately without factoring in any potential cost savings.
NABI was owned by the private equity firm Cerberus Capital Management since 2006. It was affiliated with a Hungarian manufacturing division where structural work was done and then shipped to the Anniston, Ala., plant for final assembly.
The company has just completed a reorganization eliminating the Hungarian piece in the supply chain. New Flyer is not buying any of the assets in Hungary.
Dev Kapadia, a Cerberus managing director, said, "This transaction is mutually beneficial for both New Flyer's and NABI's customers and will provide both companies with access to new resources and customers that will serve as catalysts for future growth."
After a dramatic decline in the North American bus market following the 2008-09 financial recession, two of the five smallest competitors have now been taken out of the market and New Flyer has come out the winner in both scenarios, resulting in 42 per cent of the bus business and 34 per cent of the parts business in Canada and the U.S.
Soubry said, "It's been a combination of good strategic work and plain good luck for us."
Analysts were supportive of the deal and investors showed support, boosting the stock price 2.5 per cent to $10.30.
Trevor Johnson, an analyst with National Bank Financial, said, "I think it takes them to the next level. It will allow them to ratchet up more aggressively."
In a report on Friday, Kevin Chiang, an analyst with CIBC World Markets, said, "We view this acquisition favourably as it solidifies New Flyer as the leading heavy-duty bus manufacturer and service-provider in North America. While we are still at least six to 12 months away from an increase in delivery activity, New Flyer now has more upside torque to improving transit fundamentals."
Johnson agrees there has been a pickup in the market, with more transit authorities putting out tenders for new buses and more purchases being made, but he is keen to see a requisite increase in financial performance from New Flyer. Profit margins industry-wide have suffered in the past couple of years as weaker competitors lowered prices to maintain market share. The purchase of one of the competitors is seen by some as a way for New Flyer to fight falling prices
"What happens historically is that deliveries and margins move together,:" Johnson said. "The backlog has come back and I suspect the pricing will be better. The early signs are there; it's just translating that into financial results (that remains to be seen). That has been New Flyer's biggest challenge in the last couple of years. Yes, the market has been terrible and financial results were terrible, too. Now that the market has turned, we have to make sure that is captured in the numbers."
Soubry is optimistic the deal will make New Flyer more attractive to customers.
"When you add the portfolios together, we can compete and bid on a lot more opportunities," he said. "We can be competitive and add real value and price competitiveness for the customers. And it's not like we had to burden into the deal all kinds of crazy promises about cost-cutting and extra synergies."
There is little overlap in customers.
Chiang points out in the first quarter of this year, NABI was awarded a $210-million contract by the Dallas Area Rapid Transit and New Flyer does not have a presence there. NABI also has a presence in Newark, N.J., Los Angeles and PACE-Chicago. New Flyer recently won a contract in Los Angeles but has low penetration in those other markets.