20.09.2013

Snorkel goes to Ahern

Snorkel owner Tanfield has "contributed" Snorkel to a new company - Nevada based Snorkel International Holdings - in which it will retain a 49 percent holding, with the majority held by Don Ahern of Ahern Rentals and Xtreme Manufacturing.

The move follows a six month search for a buyer, which failed to find anyone willing to take on the business which was rapidly runnning out of cash.

In the deal Don Ahern’s telehandler business, Xtreme, has agreed to a staged acquisition of Snorkel via the creation of the new business in which he will initially hold a 51 percent stake.

Xtreme will contribute - or make available - between $35 and $50 million of working capital to the new business while Tanfield will hold a "preferred interest position" of $50 million.

Should Snorkel achieve an EBITDA of at least $25 million in any 12 month period over the next five years, Tanfield can demand payment of its ‘preferred interest’ in exchange for a further 19 percent of Snorkel equity.

This will only be to be payable though if and when Snorkel is able to fund such a payment and when its net debt/EBITDA ratio is less than two.

Should this occur Ahern will also be obliged to purchase Tanfield's remaining 30 percent holding at a multiple of 5.5 times EBITDA - again subject to the new company have sufficient cash to pay.

An Extraordinary General Meeting of Tanfield shareholders has been called for Monday October 7th to seek approval for the deal.

Once the deal is complete Tanfield/Snorkel/s three most senior managers, Darren Kell, Charles Brooks and Brendan Campbell will resign from Tanfield and transfer to the new Snorkel company.

The announcement from Tanfield also said: "The Board believes that a significant opportunity exists to market competitive telehandlers utilising the value of the Snorkel brand and sales channels. Xtreme intends to make its full line of telescopic material handlers available to the Snorkel Division's global distributor network and as Xtreme currently sells the vast majority of its output in the USA, it is anticipated that this could create significant export opportunities, which should increase revenues and allow Snorkel to compete more effectively with industry leaders."

"Xtreme and Snorkel intend to pursue potential sharing or combining of facilities, administrative functions, insurance programmes and personnel to reduce overhead expenses and will share joint technology advances wherever common solutions mutually enhance both product lines."

In the year ended 31 December 2012, Snorkel had losses of £14.6 million and net assets of £23.5 million.

Vertikal Comment

Tanfield had to do something fairly rapidly with Snorkel, as production has almost dried up, starving its distributor network – its most valuable asset – of product. With so much working capital required to turn the business around - let alone regain a significant global market share -any potential buyers were clearly unwilling to gamble by acquiring the business via a more normal transaction.

Even with Ahern on board it is unlikely that Snorkel can continue to operate multiple manufacturing plants carry its heavy overhead burden or offer such a full range of products to suit all global markets.

Ahern is an astute and pragmatic operator and will be looking at the parts of the business which are of most interest to him and which he believes he can do something with. This will most likely to include a number of core products in the Snorkel range, particularly in North America.

While Tanfield shareholders will wonder whether this deal is good bad or ugly, they are likely to approve it as the only chance they have of getting anything back from the money spent on acquiring Snorkel and UpRight, while protecting their holding/investment in Smith Electric Vehicles in the USA.