Winnebago Industries makes $344M deal to buy luxury RV maker

Winnebago Industries is paying $344 million to buy premium motor-home maker Newmar Corp., expanding both its product line and dealer network.

Winnebago Industries — based in Forest City, Iowa, but managed out of Eden Prairie — will pay $270 million in cash and the rest in stock for the Nappanee, Ind.-based Newmar. The deal is dependent on certain closing conditions but is scheduled to be completed in Winnebago's first quarter of fiscal 2020, which ends Nov. 30.

"We think it's a significantly accretive acquisition, strategically, culturally and financially," said Mike Happe, Winnebago's president and chief executive. "From a product standpoint, the addition of Newmar really adds an impressive lineup of high-end motorized products to our existing Winnebago brand lineup, and it also gives us access to dealers we haven't done business with recently."

Winnebago makes motor homes under its Winnebago brand, towable fifth wheel and travel trailers under the Winnebago and Grand Design names and luxury boats under the Chris-Craft brand.

Privately held Newmar, which has been making recreational vehicles for more than 50 years, will become a business unit within Winnebago Industries. Newmar CEO Matt Miller will continue to run the business in Nappanee, Ind., a town of 7,000 about 30 miles from South Bend.

"It's a great thing for the community, and I think it's a great thing for Newmar," Miller said. "We've grown a lot the last number of years, and I think this will allow us to grow even more. I'm excited about it, and to lead the Newmar team."

Marvin Miller (no relation to Matt Miller or his family) founded Newmark in 1968 as a maker of towable vehicles, fifth wheels and trailers. Matt Miller's father, Mahlon, bought a controlling interest in the company in 1984 and started concentrating on the motorized segment of the industry.

Matt Miller became president of Newmar in 2006 and has been running day-to-day operations since. Throughout the 1990s, he and his siblings increased ownership in the company and have been the primary owners since 2010.

In 2012, Newmar became a motorized-only maker of RVs, primarily high-end premium models. According to the investor deck on the deal, both Newmar and Winnebago have five models priced under $400,000. But Winnebago has only one model priced over that mark; Newmar has six models priced over $400,000.

Newmar's highest-end King Aire offering starts at $962,130. It is a 45-foot-long diesel-powered motor home with premium indoor and outdoor entertainment systems; slide-out systems that extend the square footage of the vehicle; and a two-piece washer and dryer.

Newmar has 1,060 employees and about $661 million in annual sales and generates higher margins for its premium offerings than Winnebago does.

The deal will also energize Winnebago's motor-home segment. Since Winnebago's 2016 acquisition of Grand Designs, the majority of the company's revenue has been from its towable segments. In the company's last fiscal year ended Aug. 25, 2018, Winnebago had total revenue of $2 billion, 55% from towables.

When combined, Winnebago and Newmar will have about $2.7 billion in annual revenue — about 57% from motorized RVs.

The two companies are merging during a cyclical slowdown in the RV industry. According to a recent report from the RV Industry Association, wholesale shipments of RVs in 2019 are expected to be 401,200 units, a decline of 17.1% from 2018. Shipments are expected to be down 3.5% in 2020 to about 387,400 units.

"Although shipments are trending down from an all-time comparable record high of 504,600 units in 2017, the RV market remains healthy and robust in historical context," the report said. "The projected year-end totals of 401,200 units in 2019 and 387,400 units in 2020 would respectively rank as the fourth and sixth best years for the industry."

Motor-home shipments are expected to fall faster than towable RVs in 2020. The RVIA estimates motor-home shipments will be 40,400 units, down 10.6% from 2019 shipments.

"The last couple of years have definitely been a little bit of settling of the RV industry from some record levels," Happe said. "On the retail side, though, the industry has been performing better than on the wholesale side. Certainly the numbers haven't been quite as strong, but they haven't been nearly as negative as the wholesale shipments."

Michael Swartz, an analyst with SunTrust Robinson Humphrey who covers the RV industry, said in a research note that 50% of Newmar's motor homes are custom orders, which limits inventory risk and whose wealthier customers may provide some protection against an economic contraction.

"While understanding investor concerns around leverage and increased exposure to [motor homes] at this point in the cycle, there are clear strategic rationale for the transaction," Swartz wrote.

Despite the cyclical slowdown, Happe said he believes the RV industry has long-term growth potential and believes younger generations are attracted to the experiences that the RV lifestyle can deliver.

"You don't control as a buyer when these opportunities present themselves," Happe said. "Matt's family made the decision to look at a strategic opportunity to sell the business, and they selected Winnebago as someone to make the initial phone call to. This was something that fit with the vision that we had created, and we are confident the investment that we are making today will have a return for our business and our shareholders in the years to come."

Winnebago's last acquisition was the June 2018 purchase of the maker of Chris-Craft boats.

Winnebago is expected to report fourth-quarter and fiscal-2019 results in mid-October. For fiscal-year 2018, Winnebago's revenue was up 30.4% from the previous year. Analysts who cover Winnebago expect fiscal-2019 revenue to be down slightly, but are expecting earnings per share to increase 10% to $3.55.

Shares of Winnebago closed at $37.66, up 2.4% Monday. Shares of Winnebago are up more than 55% year to date.

Patrick Kennedy • 612-673-7926