SRAM Gets Cash Infusion from Lehman Brothers

It seems unlikely that Chicago based SRAM needed a cash infusion to make ends me, but they got one anyway, compliments of Lehman Brothers Merchant Banking. SRAM is far from poor. They are the juggernaut of the bicycle industry, nipping at the heals of component market share leader, publicly owned Shimano of Japan. It was reported yesterday that SRAM, which is approaching $500MM in revenue, sold a minority equity stake.

Based on the research that I did for my cover story on SRAM in the June 2008 issue of Today’s Machining World, they didn’t really need the liquidity. Of course, at the time, my sources were mum about the long term ownership picture. Questions about whether or not SRAM would remain privately held, were unanswered.

However, now must have been a great time for an outside investor to provide the founders and management with a wonderful opportunity to profit on their investment. Valuations for good companies in the bicycle industry have to be at an all time high. With the energy crisis in full fury and fuel prices at record highs, the lowly bicycle has never been a hotter commodity. Bikes are in again.

The comfort bike segment, those machines used to commute, run errands, and bum around is red hot. Bike shops are reporting heavy volume as cash conscious consumers scramble to locate, repair, and upgrade the bikes that have been hidden in their garages and basements for the past decade. Is it possible that our car culture is going to become a bike culture like the Netherlands, Belgium, China, Vietnam, and elsewhere?

Well, between the ongoing strength of the road bicycle segment and now the comfort bicycle segment, it is apparent that outside investors are lurking. My story recounted how the industry has gone through difficult times with many reorganizations and brand sales. Large scale production of bicycles and components is largely an offshore/Asian activity, though SRAM does operate plants in Europe too. Still, it is the economies of China and Taiwan that benefit the most from the manufacturing side of this boom. SRAM has been a shining light in their industry over the past 20 years. Their advocacy and support for bicycle related causes should also be saluted because it continues. A simultaneous announcment was made about the launch of the SRAM Cycling Advocacy Fund,

SRAM’s amazing growth likely justified a valuation that would be favorable to CEO/Founder Stan Day, and his partners. It was reported that the senior management will remain, so let’s see if SRAM continues to churn out innovative products. Time will also show whether or not SRAM continues on the breakneck acquisition pace that has fueled their rapid growth in recent years. With outside capital, I would bet that acquisition activity actually increases.

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