Pinarello and private equity, whats it worth?

Pinarello’s private equity investors are looking to make a $250+ Million Dollar Flip on the Brand. But is it worth it?

After 6 years of holding a majority ownership in the high end bike company Cicli Pinarello, the LVMH backed private equity group L Catterton is looking to exit their roughly 80% position. Fausto Pinarello, son of the original founder, current president and holder of the remaining 20% of the Italian bike manufacturer is eyeing buying back the majority of the company.

The news comes alongside recent earnings reports from Pinarello with a reported year-over-year increase in sales of 24% totaling ~$83.6 million that boosted the companies overall gross operating margin by 30%. Further financial information for the company is limited as the privately owned company is not required to produce financial statements in the way a public company must.

Pinarello currently sponsors cycling team Ineos Grenadiers and has been providing bikes for a number of Tour De France winners, including most recently, Chris Froome, Geraint Thomas, and Egan Bernal. Some feel as though Pinarello has historically lagged behind in the Peloton with technology not up to speed with the likes of bigger bike makers Specialized, Trek, and Cannondale. Team Ineos was the last tour team using rim brakes rather than disc brakes likely because the Dogma models with disc brakes were notably heavier than the majority of bikes being raced. Some rim brake enthusiasts will disagree and claim the team preferred rim brakes because of their superior performance (lol).

The company has stayed focused on its core product offering of high performance road bikes with heavy R&D investment to catch up to their competitors. We can assume Pinarello made significant investments to custom 3D print the fastest highest performance track bike ridden by Filippo Ganna while breaking the hour track record in October 2022.

The business behind Pinarello and other big brands:

Greenwich CT based L Catterton is the largest global consumer goods focused private equity firm with a special interest in luxury retail. The private equity group was formed through a merger with Bernard Arnault’s LVMH private equity investment arm. Bernard Arnault competes for wealthiest person in the world constantly trading ranks with Elon Musk, Jeff Bezos, MBS & Putin. Bernard Arnault has amassed his wealth with bets on continued conspicuous consumption through designer brands like Christian Dior, Fendi, Givenchy, Louis Vitton, Tiffany & Co., and many more.

L Cattertons investments span across industries covering restaurants, fitness companies, furniture retailers and many more. The firm has focused on companies with strong brand recognition with examples including; Birkenstocks, Baccarat, Equinox, Peloton, Restoration Hardware, and Cholula Hot Sauce.

The 2016 Pinarello investment from their Growth Equity fund is in line with other Veblen good investments, as the bike makers main offering of Dogma bikes carries both a status symbol and high price tag. Aside from team Ineos the bikes are mostly ridden by affluent riders, although the company does offer lower end models that compete with Specialized’s Tarmac. The company has also recently followed trends and expanded into gravel bikes. A Dogma F12 model retails for ~$12k, only a fraction of a Birken Bag and provides far more function!

Although Pinarello did not disclose profit figures, it is safe to assume the premium brand is chasing profits on margin rather than volume. Pinarello offers its bikes through fewer retailers than they had in 2021. Similarly to the Apple vs Android competition, Apple although making up a small fraction of total market share of Smartphones sold, takes the majority of profits in the industry, given the brand recognition that fetches a premium. This is not to say Pinarello takes a large share of the industries profits but that the company’s strategy has allowed them to focus less on selling a high volume of bikes and more on profits from premium bikes sold. In an environment where direct to consumer competitors have emerged and other companies have focused on expanding ebike offerings, Pinarello has stayed focused on their boujee customer demographic.

The L Catterton investment has allegedly been mostly “hands off” with Fausto Pinarello leading the company. The injection of cash has been used to expand production capacity in Treviso, invest in R&D for new product offerings like custom frame paint jobs and improved frame technology creating lighter and more aerodynamic bikes like the Bolide F HR used to break the hour track record.

Bikes aside, who is going to buy Pinarello and for how much?

Is the company worth the estimated $280M that Fausto Pinarello may offer? Given the terms of the original deal he has the right to submit the first offer within 90 days of L Cattertons intention to sell announcement, so by around march. Is the dogma bike worth $12k? The answer is that they are all worth what someone is willing to pay for them. As long as there are customers flush with cash willing to pay for the premium brand, then they are worth it.

The industry has been active with private investment. Colnago, another high-end bike maker sold to a private Abu Dhabi fund in 2020. Accell Group, the maker of Raleigh, Sparta bikes others was taken private by KKR for $1.77BN. For trying to assign a dollar value to Pinarello we can use some back of the napkin math on comparable companies in the industry. We only have revenue data for Pinarello so will look at price/sales ratios of similar companies. At the higher end, Specialized trades at 3.5x sales, the lower end Accell group was recently acquired for 1.25x sales. Peloton has been trading recently at ~1.5x sales. On the low end of the spectrum this would value Pinarello at ~$105M and the high end ~$293M.

If Fausto Pinarello and his group of deep pocketed investors don’t make an offer close to the high end of this valuation spectrum, then L Catterton will look for other bidders, this could very well result in the sale to another private equity firm and risk a change in the hyper-focused strategy Pinarello has pursued throughout its history.

Contributor

Robert