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By Greg Gerber
Editor, RV Daily Report
The RV industry has been consolidating for years, and the biggest consolidation of all time just wrapped up today when Thor Industries, the largest RV maker in America, swallowed Erwin Hymer Group, the largest RV maker in Europe.
Wall Street signaled that it wasn’t entirely happy with the move today with Thor stock dropping almost 2 percent. I suspect the fallout from the Thor-Hymer merger will be felt for years to come.
There are already fewer independent RV makers, building recreation vehicles stocked with components from fewer independent suppliers, and selling them to fewer independent RV dealers. Yet, I expect consolidation will continue until the bottom drops out of the economy.
That’s why the Thor acquisition has the potential to really shake up the RV industry when the economy experiences a correction.
Thor had always been proud of the fact the firm was relatively debt free. It could react on a dime to changing market conditions and take advantage of opportunities simply because it had a lot of cash and no debt.
According to a press release issued by the company today, Thor Industries now has a $2.1 billion term loan plus a $750 million asset-based revolving line of credit.
On Oct. 31, the date of their most recent quarterly report, Thor had $225 million in cash and $226 million in debt. So, for all practical purposes, it could pay off its debt with cash. Nice! Especially for a company that was hauling in $205 million in gross profit on $1.76 billion on quarterly sales.
But, today, the company spent $95 million of its cash as part of the financial agreement to acquire Hymer.
In four months, the current economic recovery will become the longest in American history. The fact that we are continuing to expand baffles my mind considering our nation is $21 trillion in debt and still borrowing a quarter-billion a quarter – even in this powerful economy.
There are a dozen other reasons to believe that America is overdue for a correction, but I won’t go into that in this editorial. However, when it arrives, what will that correction mean for the largest RV manufacturer in the world which has special arrangements with the largest RV dealership in the world, Camping World?
If my calculations are correct, and Thor is paying off its loan at the current LIBOR rate of 2.5%, they will need to cough up $4,375,000 per month to make interest payments plus $25 million per month to pay down the term loan – excluding costs to pay the $750 million revolving credit line.
How many RVs have to be sold each month just to cover a $29 million payment, let alone cover the warranty costs pertaining to those RVs?
Thor’s acquisition of Hymer may go down in history as a bold, decisive move to capitalize on an incredible opportunity that will cement Thor Industries’ position as king of the world’s RV industry for decades to come.
Or, it will go down in history as the event that sealed Thor’s fate when the economic correction everyone knows must happen finally begins.
Let’s keep our fingers crossed that the economy and industry continues to expand!