Winnebago skyrockets 24% on the news of a $500 million acquisition of Grand Design
AP Photo/Paul Sakuma
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Shares of the RV-maker Winnebago saw the highest price gain since its IPO back in 1972, after announcing the purchase of the towable RV producer Grand Design for $500 million that includes cash and Winnebago's newly issued shares (for about $105 million).

On Monday, as Winnebago Industries Inc. (NYSE: WGO) confirmed its acquisitions of a privately-held Recreational Vehicles company Grand Design, its shares climbed to the highest level in the last 25 years. An upgrade from an analyst Robert Baird only further strengthened the stock's position as it soared 29.8% during yesterday's session and closed the day 23.7% higher, reports the Motley Fool.

"The acquisition is expected to be immediately accretive to Winnebago's growth profile, profit margins and earnings per share (EPS), excluding transaction costs and before giving effect to anticipated synergies," the company said in the report on preliminary Q4 Fiscal results.

According to the experts, this deal is the largest in Winnebago's history and is expected to help the company to overcome the market challenges it has been dealing with recently. Winnebago, as a producer of the premium "Class A" Recreational Vehicles, has experienced serious market pressures as consumers has been increasingly choosing more affordable towable RVs. This is where the idea of acquiring Grand Design, one of the fastest growing RV manufacturers, comes from as its cheaper towable RVs have been getting increasingly popular among the customers. A 3-year-old company has generated over $428 million in revenues only in the past 12 months, showing a compound annual growth rate of more than 80% since 2013 and a 14% EBITDA margin.

"The addition of Grand Design will accelerate our expansion in the towables business, creating a broader and more balanced portfolio well-positioned to capitalize on the opportunities across the RV market and to drive improved profitability and long-term value for stakeholders," said Michael Happe, Winnebago's CEO.

The Motley Fool adds that the acquisition will allow Winnebago to grow its revenues in the towables sector by as much as 27%, from the current level of 10%. This is an important step for a company currently facing a drop in demand for the more expensive RVs. The market seems to immediately support the deal by reacting with yesterday's record-high session.

On top of that, investors can be confident about the success of the pricey deal between Winnebago and Grand Design because of a promising example of a similar acquisition completed only a few months ago. Jayco Corp., a camping trailer manufacturer, was acquired by Winnebago's competitor Thor Industries (NYSE: THO) for over $570 million back in July, says the MarketWatch. When the acquisition deal was announced, Thor's stock soared over 30% resembling yesterday's market reaction to Winnebago's deal.

According to Winnebago's report on preliminary fiscal quarterly results, the two companies combined are expected to bring approximately $1.4 billion in "pro forma" revenue and about $7 million in the annual run-rate cost synergies distributed over the next 3 years. Yet, Grand Design will remain a distinct separate business with its established brand lines, says the company. The two companies are also planning to share and integrate the "manufacturing best practices" to expand their marketshare even further. As a result of that, Winnebago expects to significantly increase the cash flow and reduce its debt to below the 1.5x EBITDA by the end of 2018.

These are all quite ambitious business plans and it seems like Winnebago is not doubting the success of its biggest-ever deal. Winnebago is already on its way to beat the analysts predictions for this quarter as its preliminary earnings amount to $263.3 million, what is considerably higher than the expected $249 million.

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