Very interesting. From an article a few months ago on Competitive Cyclist (who now appear to have been advocating a strategy that will bite them in the rear):
Gossip, anyone? From multiple sources this week I've heard tales of a juicy potential acquisition. Dorel, owner of Cycle Sport Group (read: Cannondale, GT, Schwinn, Mongoose), is rumored to be in talks to acquire Performance Bicycle. It's a transaction that makes sense in almost every conceivable way.
As I've noted here on several previous occasions, the big hitters of North American bike manufacture are dying to modernize their distribution chains. For now the big hitters -- Specialized, Trek, Cannondale, Giant -- have only one channel of distribution: Their dealer network. Take any other highly-regarded, high-end consumer good sold in America -- Patagonia Capilene shirts, Apple iPods, Nike Air Jordans, Coach leathergoods, or any of a billion other examples -- and you have a multitude of ways to buy them: Direct from the brand on-line; direct from the brand through a corporate brick & mortar store; through a 3rd party online retailer; or through a 3rd party brick & mortar retailer. Illuminated manufacturers all know one fact: The name of the game is customer convenience, which means offering your goods through whatever sales channel suits customers best. This concept, in business-speak, is known as "multi-channel retail."
In the bike industry as it exists now, multi-channel retail is non-existent. Wanna buy a Specialized Roubaix? You need to buy it from your local Specialized dealer (whether you like them or not.) Wanna buy it from Specialized.com? Not an option. Wanna buy it elsewhere on-line? There's only one place: Ebay, in violation of Specialized warranty. Brands like Specialized & Trek have fought bloody battles over the last decade to sire the biggest dealer networks possible, and they're terrified of losing dealers to their rivals as a consequence of diversifying into additional sales channels. Their fear of their dealers outweighs their regard for customer convenience.
If Dorel buys Performance, it provides them total vertical integration thanks to Performance's ~94 brick and mortar locations, and their healthy online business. No company currently has integration from manufacturing all the way to multi-channel retail like this. For Performance, being acquired is pre-destined: They were acquired by a private equity concern just 3 years ago, and given the strong numbers reported by the bike industry's most solid players, the time to sell is now. Last I heard, private equity types aren't collectors. Buying & selling is what they do.
Is there any downside to a Dorel acquisition of Performance? In terms of GT, Schwinn, and Mongoose, there's no risk. These are big box brands (i.e. Walmart) and companies like these don't fret about itty-bitty specialty channels like Performance. The only interesting issue is Cannondale: Word on the street is that of all the big brands, they're the one that fared the best during the economic turndown of 2009-ish -- a byproduct of Cannondale's excellent management of their dealer channel. Will your local Cannondale dealer stand for Cannondale bikes being parked in Performance stores? What if they're sold on Performance's website (or on Cannondale's website)? A mass exodus of previously committed Cannondale dealers is the one risk factor for Dorel here. Given the irrational, ornery ways of most IBD's, even the remotest connection of Cannondale to Performance might cause them to jettison the brand. The drama should be fun to watch unfold