HOW BRP CAUGHT A BIG WAVE WHILE BOM­BARDIER WAS LEFT TREAD­ING WA­TER

National Post (National Edition) - - FP INVESTING - ALICJA SIEKIERSKA

in Val­court, Que.

On April 3, 2003, José Boisjoli gath­ered the 2,000 em­ploy­ees at Bom­bardier Inc.’s his­toric recre­ational prod­uct di­vi­sion in Val­court, Que. to break some big news: The core unit upon which the aero­space and trans­porta­tion gi­ant had been built was be­ing sold.

With ques­tions swirling about the di­vi­sion’s fu­ture — Who would buy it? Would the Bom­bardier-Beau­doin fam­ily still be in­volved? Would it re­main in Val­court? — Boisjoli, then its pres­i­dent, chose to look at the sell-off as an op­por­tu­nity.

“Think of it as if we’re a teenager,” he re­called telling the crowd as­sem­bled on the plant floor. “We’re out of the house and now we need to prove that we can live by our­selves.”

Four­teen years later, that teenager is thriv­ing. While its for­mer par­ent has strug­gled with missed de­liv­ery dead­lines, govern­ment loans and com­pen­sa­tion con­tro­ver­sies, Bom­bardier Recre­ational Prod­ucts Inc. — now branded sim­ply as BRP — has es­tab­lished it­self as a global leader in the com­pet­i­tive recre­ational prod­uct mar­ket.

With its stock at record highs, a new div­i­dend and an am­bi­tious growth plan tar­get­ing 50 per cent rev­enue growth by 2020, BRP is even nip­ping at Bom­bardier’s heels when it comes to mar­ket cap­i­tal­iza­tion, some­thing that would have been un­think­able when it was spun off.

Speak­ing to the Fi­nan­cial Post in his of­fice in Val­court, a town prac­ti­cally syn­ony­mous with the Bom­bardier name, Boisjoli, now chief ex­ec­u­tive of BRP Inc., re­flected on the 2003 sale, how the com­pany has grown since then and why it hasn’t suf­fered the same fate as Bom­bardier over the last sev­eral years.

The spinoff it­self, he noted, has been a part of that equa­tion.

“Be­ing sep­a­rated from Bom­bardier gave us a chance to prove to the rest of the world that we can be suc­cess­ful on our own,” Boisjoli said.

Bom­bardier ini­tially de­cided to sell its legacy recre­ational prod­uct di­vi­sion — orig­i­nally cre­ated as a snow­mo­bile com­pany by Joseph-Armand Bom­bardier in 1942 — as part of a larger re­struc­tur­ing cam­paign aimed at con­vinc­ing in­vestors that the strug­gling aero­space and trans­porta­tion com­pany was on the road to re­cov­ery.

BRP was bought by a con­sor­tium made up of Mitt Rom­ney’s in­vest­ment firm Bain Cap­i­tal, the Bom­bardier-Beau­doin fam­ily and pen­sion-fund man­ager Caisse de dépôt et place­ment du Québec in Au­gust 2003 for $1.23 bil­lion. Then-chief ex­ec­u­tive Paul Tel­lier, who had to con­vince the fam­ily a sell-off was the right de­ci­sion, pro­claimed Bom­bardier was back on track af­ter the sale.

Karl Moore, a pro­fes­sor at the De­sau­tels Fac­ulty of Man­age­ment at McGill Uni­ver­sity, said the move was a good de­ci­sion not only for Bom­bardier, but the recre­ational prod­uct di­vi­sion as well.

“Paul did the right thing “Be­ing sep­a­rated from Bom­bardier gave us a chance to prove to the rest of the world that we can be suc­cess­ful on our own,” says José Boisjoli, pres­i­dent and chief ex­ec­u­tive of­fi­cer of BRP. in terms of real­iz­ing BRP was the or­phaned child with two much big­ger broth­ers (in aero­space and trans­porta­tion),” Moore said. “At the time, with Bom­bardier’s cap­i­tal re­quire­ments for the C Se­ries pro­gram and what they were do­ing on the train side, the recre­ational prod­uct di­vi­sion would have been re­ally over­looked and ig­nored, and prob­a­bly rightly so, be­cause if you’re CEO of Bom­bardier, you re­ally need that money for other things.”

The deal has paid off for the Bom­bardier-Beau­doin fam­ily, which — along with Bain — con­trols about 65.2 per cent of the com­pany. The fam­ily re­ceived more than $3 mil­lion this month thanks to the new div­i­dend, and more from sell­ing shares back to BRP through a re­cent sub­stan­tial is­suer bid. Three fam­ily mem­bers sit on BRP’s board of di­rec­tors: chair Lau­rent Beau­doin, the son-in-law of the Bom­bardier’s founder; J.R. An­dre Bom­bardier, Beau­doin’s brother-in-law, and Louis La­porte, Beau­doin’s son-in­law.

While the fam­ily has been crit­i­cized for con­trol­ling Bom­bardier through a du­al­class share struc­ture, and sparked out­rage when board mem­bers were of­fered sig­nif­i­cant com­pen­sa­tion pack­ages not long af­ter the com­pany re­ceived a $376.5 mil­lion in­ter­est-free loan from the fed­eral govern­ment, Boisjoli said the sit­u­a­tion at BRP has been dif­fer­ent.

“It’s a to­tally dif­fer­ent dy­namic than what hap­pened at Bom­bardier,” he said, point­ing to the fact that BRP has not re­ceived any govern­ment sup­port.

“I be­lieve that with share­hold­ers like the fam­ily, who knew the busi­ness and knew the prod­uct, with the Caisse de dépôt et place­ment du Québec in­volved from the be­gin­ning, and Bain com­ing in as a to­tal out­sider, it gave us a chance to be chal­lenged by peo­ple from the out­side and (re­visit) the way we were do­ing things. We were chal­lenged more than ever be­fore. Some­times there were ar­gu­ments be­tween the two big share­hold­ers, but I think at the end of the day, if of­fered a new look at the way you do things. It re­sulted in a very good dy­namic.” been in­dis­putable.

Since go­ing pub­lic in May 2013 at an IPO price of $21.20, BRP’s stock has soared by more than 80 per cent. In June, it an­nounced its first quar­terly div­i­dend, send­ing shares to record high of $40.53 and prompt­ing many an­a­lysts to boost their end-of-year tar­get prices. in­vestors un­der-ap­pre­ci­ate the strate­gic ground­work man­age­ment has put in place, through stream­lined prod­uct in­no­va­tion and op­ti­miz­ing its dealer net­work.

The com­pany has also grad­u­ally shifted a large por­tion of pro­duc­tion from Que­bec to Mex­ico, where about 3,600 work at three as­sem­bly fa­cil­i­ties, in ad­di­tion to fa­cil­i­ties in Aus­tria, Fin­land, North Carolina and Wis­con­sin. About 8,700 em­ploy­ees work at BRP.

Do­erk­sen said BRP’s abil­ity to suc­cess­fully launch new and im­proved prod­ucts — such as the more af­ford­able Sea Doo Spark — are due in part be­cause of the man­u­fac­tur­ing fa­cil­i­ties in Mex­ico.

“That’s def­i­nitely been a very sig­nif­i­cant part of BRP’s suc­cess,” Do­erk­sen said. “Their abil­ity to en­ter these new mar­kets with new prod­ucts and ac­cel­er­ate growth has a lot to do with be­ing able to of­fer a lower-cost prod­uct.”

But its re­vamped, cost-ef­fi­cient man­u­fac­tur­ing foot­print could be at risk if there are ma­jor changes in the North Amer­i­can Free Trade Agree­ment rene­go­ti­a­tions. Although U.S. Pres­i­dent Don­ald Trump has stepped back pre­vi­ous threats of tear­ing up the trade agree­ment, the com­pany has sub­stan­tial stake in rene­go­ti­a­tions, given it has more than $1 bil­lion in trad­ing vol­ume be­tween Mex­ico and the U.S.

“Let’s just say I don’t wake up at night be­cause of it, but if I wake up at night, I think about it,” Boisjoli said about the fate of NAFTA.

“We were more con­cerned when the ad­min­is­tra­tion took over at the be­gin­ning of the year. Now we have bet­ter clar­ity on the process, which is nor­mal, and we be­lieve we’ll find a way to over­come dif­fi­culty if there is any.”

BRP has set an am­bi­tious goal of hit­ting $6 bil­lion in rev­enues by 2020, up from $4.17 bil­lion in fis­cal 2017. Boisjoli said prod­uct in­no­va­tion is just one of the many op­tions cur­rently be­ing dis­cussed when it comes to reach­ing that profit tar­get.

“Whether it’s a sev­en­prod­uct line that we do from the in­side, some­thing that we ac­quire or some­thing we sign a part­ner­ship for, it’s not de­fined yet,” he said. “But we have a group of about 15 peo­ple work­ing on this for the last 12 months. There are many op­tions. I’m trav­el­ling the world to help see what will be next.”

Along a win­dow ledge of Boisjoli’s of­fice are re­minders of some of the chal­lenges it has faced since 2003, in­clud­ing snow­mo­bile parts that pre­sented de­sign ob­sta­cles.

“When I look at what will come in the next three years, it’s a lot more than we’ve done in the last three,” Boisjoli said.

Like many of the prod­ucts it builds, Boisjoli is con­tent to see BRP forge its own path.

“We are very au­tonomous in the way we do things, with a strong board and strong gov­er­nance,” he said. “At the end of the day, we don’t deny our his­tory, our past and we don’t deny that (Bom­bardier) are go­ing through a more dif­fi­cult time in the last few years. We’re hav­ing our own story, our own suc­cess.”

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