Target Information

On February 12, 2020, Kinderhook Industries, LLC ("Kinderhook") announced a definitive agreement to sell SCA Performance Holdings, Inc. ("SCA" or the "Company") to Fox Factory Holding Corp. (NASDAQ: FOXF) ("FOX") for a purchase price of $328 million, excluding vehicle inventory. As part of the deal, FOX has committed to an additional $13 million in contingent performance-based retention incentives for key SCA management, which will be payable over the next two years. The acquisition is subject to regulatory approvals and customary closing conditions, with an anticipated completion by late first quarter of fiscal 2020.

SCA is recognized as a leading OEM-authorized specialty vehicle manufacturer ("SVM") for light-duty trucks and SUVs, headquartered in Trussville, Alabama. It operates under three renowned aftermarket brands: SCA Performance, Rocky Ridge Trucks, and Rocky Mountain Truckworks. The relationship between FOX and SCA is highly synergistic, as the acquisition complements FOX's existing Tuscany business by broadening its geographical manufacturing footprint in North America and expanding its product offerings in the growing automotive aftermarket segment.

Industry Overview

The automotive aftermarket industry in the United States has been experiencing significant growth, driven by increasing consumer demand for performance-enhancing modifications for vehicles, including trucks and SUVs. This segment is characterized by a robust interest in customized modifications, which has led to a surge in specialty vehicle manufacturing. With consumers increasingly seeking personalized vehicles that stand out, companies like SCA are well-positioned to capitalize on this demand.

According to industry reports, the specialty vehicle sector within the automotive industry has demonstrated resilience and growth potential amid overall market trends. This sector has seen rising participation due to an expanding base of performance-oriented consumers. As the trend of vehicle personalization continues to grow, specialty vehicle manufacturers have the opportunity to innovate and introduce new products that cater to customer preferences.

Additionally, light-duty trucks and SUVs account for a significant share of the overall vehicle market in the U.S., which further validates the strategic importance of SCA's position. By aligning with companies like FOX, specialty vehicle manufacturers can leverage their collective strengths to enhance distribution, customer outreach, and product innovation.

As part of the larger automotive industry, SCA benefits from trends such as increased disposable income, which enables consumers to invest in aftermarket modifications and enhancements. This industry is expected to maintain a steady growth trajectory as advancements in technology and design continue to enhance vehicle performance and aesthetics.

Rationale Behind the Deal

The acquisition of SCA by FOX serves as a strategic move to bolster FOX's presence in the growing specialty vehicle manufacturing market. By integrating SCA's established brands and operational expertise, FOX aims to accelerate its growth in the performance-defining aftermarket segment. The inclusion of SCA will enhance FOX's product offerings, allowing for the introduction of Fox components such as lift kits and suspension systems on SCA’s vehicles, thereby providing customers with an expanded range of high-performance options.

This strategic alignment not only solidifies FOX's market position but also opens new avenues for collaboration and innovation between both companies, ultimately benefiting their shared customer base.

Investor Information

Fox Factory Holding Corp. specializes in designing and manufacturing high-performance products primarily for bicycles, on-road and off-road vehicles, and specialty vehicles. As a direct supplier to leading power vehicle original equipment manufacturers (OEMs), FOX has established a strong competitive edge in the market.

Backed by a comprehensive product portfolio and an extensive distribution network, FOX is well poised to leverage its acquisition of SCA to enhance its market offerings and customer reach. The management team’s commitment to quality and performance aligns perfectly with SCA’s brand identity and operational mission.

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In our expert opinion, the acquisition of SCA by FOX presents a promising investment opportunity. This deal not only amplifies FOX's capabilities within a fast-growing niche but also enhances its value proposition to customers seeking performance-driven aftermarket solutions. By integrating SCA into FOX's operations, the combined entity can better serve the expanding market for customized vehicles while maximizing operational efficiencies.

Furthermore, SCA’s established brand equity and loyal customer base will provide FOX with immediate access to a new segment of consumers. The potential for cross-selling products and enhancing the customer experience is significant, which could lead to increased sales and market penetration in the long term.

Given the favorable industry trends and consumer behaviors leaning towards vehicle personalization, combined with the management expertise both companies bring to the table, this acquisition is poised for success. If managed effectively, this alignment can catalyze further innovations in the specialty vehicle market.

However, attention will need to be given to the integration process and how effectively both management teams can collaborate. Ensuring that the culture and operational procedures of SCA mesh with those of FOX will be vital to realizing the full potential of this investment.

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