Xtreme Manufacturing to Buy Snorkel in Phased Purchase | Construction News

Xtreme Manufacturing, Las Vegas, Nev., plans to buy the Snorkel Divison of Tanfield Group, which is headquartered in Washington, Tyne & Wear, England.

The purchase of the powered access manufacturer will be a phased sale, with payment based on the financial success of a new Nevada-based company named Snorkel International Holdings LLC.

Tanfield shareholders will vote on the proposed plan at a general meeting on Oct. 7.

Under the plan, Tanfield will initially “contribute” the Snorkel division to Snorkel International Holdings LLC. Xtreme Manufacturing will hold 51% of the new company, and Tanfield will hold 49%. In addition, Tanfield will hold a $50-million (U.S.) preferred interest in new entity.

If the Snorkel Division reaches EBITDA of at least $25 million (U.S.) for any 12-month period within 5 years of completion, Tanfield can demand payment of the preferred interest.

The payment would be made when Snorkel International Holdings is able to fund it and the entity’s net debt/EBITDA ratio is less than 2. The payment would reduce Tanfield's stake in Snorkel International Holdings to 30%, and increase Xtreme’s share to 70%.

Subject to the payment of the preferred interest, and within 5 years of completion, Tanfield has a "put" option on this remaining holding, whereby Xtreme will be obliged to purchase the remaining interest held by Tanfield at an agreed multiple of 5.5 times EBITDA earnings, as at the date of the put, again subject to Snorkel International Holdings being able to fund it. Xtreme has a call option on the same terms. 

Use of the “contribution” arrangement is based on the need for Xtreme to invest an estimated $35 million to $50 million (U.S.) of working capital to revive Snorkel, which lost about $23.6 million U.S. (£14.6m) in the year ended December 31, 2012. At that time its assets totaled about $37.9 million U.S. (£23.5m).

Tanfield says that the need for a new owner to inject significant working capital to revive the Snorkel Division made it clear that the selling price for the Snorkel Division would have to reflect that need.

“Therefore, the Board considers that, as in the case of the Transaction, an acquirer or investor that is willing to fund the Snorkel Division's recovery, whose own business is in a related industry that will support that recovery, and who is also willing to allow Tanfield to benefit from the recovery upside, is preferable to an outright sale,” said a Tanfield news release.

Xtreme Manufacturing appears to be a good match. The company designs and manufactures telehandlers used widely in construction, mining, and other heavy-duty applications.

Tanfield’s statement says that Don F. Ahern, as trustee of the DFA Separate Property Trust, owns 96.6% of Xtreme and 97% of Ahern Rentals, Inc., a long-standing Snorkel customer and one of the world’s largest privately held equipment rental companies. Tanfield’s statement also identifies Mr. Ahern as CEO of Ahern Rentals and managing member of Xtreme.

Xtreme manufactures telehandlers and sells them mainly in the United States. Snorkel manufactures a full range of powered access products, but not telehandlers, and sells them worldwide.

The Tanfield release says that Xtreme is looking to expand its footprint to global markets, and that Tanfield believes there is significant opportunity to market telehandlers through Snorkel’s global distributor network.  

“That could create significant export opportunities, which should increase revenues and allow Snorkel International Holdings to compete more effectively with the industry leaders,” says the Tanfield release.  It also says that the arrangement should reduce overhead and increase supply-chain efficiency as, “Snorkel International Holdings intends to pursue global sourcing to reduce product costs, whilst enhancing product quality, using the global supply networks of the Snorkel Division and Xtreme.”

The recovery plan also includes Xtreme and Snorkel pursuing potential sharing or combining of facilities, administrative functions, insurance programs, and personnel to reduce overhead expense. The two companies will also share technology that benefits both product lines.

As part of the transaction, Tanfield chief executive Darren Kell, financial director Charles Brooks, and powered access division managing director Brendan Campbell will resign from the Tanfield board to transfer with the Snorkel Division.