FRIEDRICHSHAFEN, Germany (BRAIN)—SRAM president Stan Day spoke publicly for the first time Wednesday about the component company’s plans to go public, saying the move would lay the financial foundation for future growth, improve transparency in the industry and ensure SRAM’s existing management would steer the company’s fate in the long term. (Click on title and then link to view Eurobike PDF Newsletter Day 2).
Although limited from talking about company operations or financial details by a “quiet period” required by U.S. regulators before issuing an initial public offering, Day addressed a few of the reasons behind the company’s decision to list on the Nasdaq stock exchange, an announcement first made in May.
The capital raised by the IPO—expected to be about $300 million—will allow the $524 million company to grow larger. Day set the stage for the first move in that direction by declaring that SRAM’s intention to become the leader in the urban bike category in the next five years through internal gear hubs, external drivetrains for trekking and commuter-style bikes, and a new e-bike drivetrain, now in development.
SRAM is working with several OEM partners on the electric-assist components, and expects the group to be on the market next year, said David Zimberoff, SRAM’s global marketing director.
“It’s primarily going to be a European initiative,” Zimberoff said, adding that American brands still need to shape the future of the urban category there.
Another benefit in becoming publicly traded is increasing influence on government entities during discussions about cycling infrastructure improvements.
As for when SRAM will actually list on the market, it could be anywhere from next month to next year, given the uncertainty in today’s global economies and the choppy capital market, Day said.
“The timing of our IPO isn’t clear to me as I stand here today,” he said, speaking to a room full of journalists gathered for SRAM’s two-hour new product press conference. “We’ll go public when the market calms down, when the U.S. government figures out its debt, when Europe figures out what to do with its currency issues.”
Day said the regulatory atmosphere today poses challenges for any company that goes public. “We’ve had to add another layer to our business so we can meet the regulatory issues posed by the Sarbanes-Oxley Act,” he said. The act, officially known as the Public Company Accounting Reform and Investor Protection Act, was passed by Congress in July 2002 as a reaction to a number of accounting scandals involving public companies such as Enron and Tyco.
Meeting the act’s requirements imposes additional staff and reporting costs. “Sometimes it feels intrusive, like showing that we aren’t cheating our shareholders. We’re an honest company and I find that frustrating,” he said. As for cost, Day estimates that it will shave one-third to one-half of a percentage point off revenue.
Still, it requires SRAM to improve its planning, and while it layers in new internal accounting standards, it will improve the company’s financial discipline, he added.