HOW BRP CAUGHT WAVE 14 YEARS AFTER SALE
Sea-Doo maker thriving while ex-parent Bombardier treads water
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 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 spin-off 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 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 Bombardier’s founder; J.R. Andre Bombardier, Beaudoin’s brother-in-law, and Louis Laporte, Beaudoin’s sonin-law.
While the family has been criticized for controlling Bombardier through a dual-class 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.”
Both Beaudoin and his son Pierre led the recreational product division before it was sold.
As Moore puts it, regarding the family’s role: “I don’t think they’ve been hands-on in the way they were with Bombardier. At BRP, they are letting other people run the show and they are being patient because they really understand the business. Certainly Pierre and Laurent have a good sense of what it takes.”
The market results have 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.
Bombardier shares, meanwhile, have plunged nearly 49 per cent during the same time period. The company is in the midst of a fiveyear turnaround plan under the leadership of Alain Bellemare, who joined in February 2015. That plan showed hints of bearing fruit on Friday, when Bombardier beat earnings expectations and posted a surprise adjusted profit.
According to Bloomberg, as of late July, BRP had a market cap of about $4 billion while Bombardier sits at $5.7 billion; for a brief spell in 2015, BRP was the more valuable entity.
Also crucial to BRP’s success has been a focus on product development and innovation, and creating significant efficiencies in the manufacturing process.
Since being spun out, BRP has expanded from producing snowmobiles and personal watercraft to an all-season recreational company featuring a six-product line that includes outboard engines, Rotax engines, off-road and onroad vehicles. Its Ski-Doo, Lynx and Sea-Doo lines are the top brands in their markets, with revenues reaching about $1.5 billion last year. Its most successful product is its year-round line, featuring the three-wheeled Spyder, sideby-side vehicles and ATVs, which brought in more than $1.6 billion last year.
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.
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 seven-product 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.”