Hero MotoCorp buying 49.2% of Erik Buell Racing for $25M
Hero MotoCorp of New Delhi India has a long history of manufacturing both bicycles and motorcyles. Starting in 1956 as Hero Cycles and became the largest manufacturer of bicycles in India. In 1984 Honda invested in Hero Cycles to bring better technology to Hero’s struggling motorcycle production. With the introduction of Honda as a partner and investor, the company was renamed Hero Honda and set about dominating the Indian motorcycle market. It’s scooters and motorcycles were both fuel efficient, affordable, and reliable, which locked in the massive Indian market.
In a round of restructuring their partnership with Hero, Honda In a sweetheart deal over two years ago, offered the Munjal family which owns hero to buy back the stake held by Honda and simultaneously brought in Bain Capital and Singapore’s GIC as investors.
Bain Capital-backed Hero MotoCorp Ltd, through its US-based wholly owned subsidiary HMCL (NA) Inc, is buying 49.2 per cent stake in American firm Erik Buell Racing Inc (EBR) for $25 million (Rs 150 crore), as per a stock market disclosure.
EBR is a three-year-old firm started by Eric Buell, a former executive with the iconic motorcycle maker Harley Davidson. Buell had earlier formed Buell Motorcycle Company, but eventually sold it to Harley Davidson. After Harley Davidson shut Buell Motorcycle a few years ago, Buell moved out to start up again. Harley Davidson continues to hold the brand rights for Buell but EBR is an independent venture of its founder.
Hero MotoCorp has already invested $15 million in EBR and the remaining $10 million will be invested within the next nine months.
The move can open up a line of better powered and more sporty motorcycles to take on other players in India, including its former partner Honda. Hero MotoCorp is already the largest motorcycle maker in the world by volumes. However, with the breakup of its JV with Honda a few years ago, it is now dependent on its mass market products.
To boost its position at the low-volume but high-margin premium end of the Indian motorcycle market, the firm may bank on new products from EBR’s stable. Last year, Hero MotoCorp entered into a technology sourcing pact with EBR to strengthen its presence in the high-end bike segment.
EBR’s flagship model is 1190RS, which comes as a limited-edition, high-power sports motorcycle, but the company is also working on some other models. Besides motorcycles, the firm manufactures and sells spare parts for its products.
This is one of the rare corporate moves by the Munjal family (who controls Hero MotoCorp) to expand the business. The firm has been banking on its strong portfolio of economy-end legacy products, which dominate the Indian market at present and happen to be the company’s cash cow.
Three years ago, the Munjals bought back the equity stake, held by their Japanese partner of the nearly three-decade-old JV, and in a sweetheart deal, simultaneously brought in the private equity firm Bain Capital and Singapore’s sovereign wealth fund GIC as investors.
Earlier this year, TVS Motors also joined hands with BMW Motorrad to develop and manufacture a new series of motorcycles that will cater to the sub-500cc segment.[amzn_product_inline asin=’1884313744′]