The Orange Falling Knife: Part 4

I have been holding back on the next part of this series, for a few reasons. Primarily, so many things are happening, so quickly, that a properly researched long-form article like parts 1, 2, and 3 would be irrelevant within only a few days. But this is a fascinating business case study playing out before us, and I do want to keep the thought path going. So.....

I drilled down a little into PMGs annual reports from 2013 to 2023 with the intent of finding something indicating where they went off the rails. From my non-finance-savvy POV, what I saw was strong year-over-year unit and revenue sales growth across all segments. Revenue roughly tripled from ~€910m in 2013 to ~€2.66b in 2023. Global motorcycle unit sales across all brands more than doubled from 183,170 in 2015 to 381,555. Husky and Gas Gas sales actually grew faster than that but dropped from 2022 to 2023 for some reason. Sales outside the US and EU also had strong growth. Even bicycles - which they are blaming for the mess they are in (a red herring IMO) - were selling well. There are some small fluctuations in numbers but the overall trend for the company was an enviable case of "up and to the right". So, what went wrong? Numbers-wise, there is only one big, huge, glaring, ginormous change that does stand out:

They absolutely exploded their debt.

I remind you all that I am not a finance professional. That said, I am qualified to point out their own numbers. PMGs debt hung over ~€300m from 2013 to 2020, dropped to ~€190m in 2021, bumped to €265m in 2022, and then exploded by 3x to ~€776m in 2023. Depending on where you look it is now somewhere between €1.5 and €2.9 billion.

Why that happened is unclear, but there is zero doubt it is at the core of this. Not the economy, not sales declines, not bicycles FFS, and certainly not COVID.

It is something they are supposed to manage, control and avoid.

Until now I have avoided being speculative or offering opinion, as they both come with automatic questions of accuracy, bias, agenda, etc. Many people do not care if they embarrass themselves, I do. But I have acquired quite a few non-quantitative observations that give me an idea of how they got into this mess. And the thing is, even though I cannot prove them, I'm pretty sure they aren't far off the mark.

On one hand, PMG is a company that is a beacon of success for nearly every metric. On the other, they cratered so deeply and so quickly that no one outside the company saw it coming. Or did we? Because, everywhere you look, there were examples of PMG making extravagant and questionable decisions that we all knew of.  Gas Gas, MV Agusta, bicycles, a palatial shrine to themselves in Austria, another palatial building in Murieta, MotoGP, plus a long list of other separate companies that became subsidiaries. The list is so long, we stopped questioning them. Many of us looked at these, scratched our heads, but figured a company so successful knew something we did not. We were wrong to assume that.

There are numerous clues that Stefan Pierer has blind spots and ego issues. He is known to be "resistant to advice" and has created a centralized leadership structure with a small number of people around him. These people are hesitant to disagree with him, and some that did suffered professional consequences. His style is more willful and forward-driving than thoughtful or a listener. This was undoubtedly a terrific asset in building the company.  However, it is easy to imagine someone with this style being unable to take their foot off the accelerator.

All these anecdotes are not quantitative or finite. But they are absolutely, positively, 100% a pattern. Over the course of the last 7 weeks, I saw so many top-level indicators of hubris, that I have come to the inescapable opinion that one man, alone, drove Pierer Mobility Group into the ground: Stefan Pierer. The same guy that deserves credit for building the company deserves scrutiny, blame, and perhaps even derision for almost completely wrecking it. A case should be made for the judgement to be more harsh than the credit, as building it up is his job, wrecking it looks more like negligence each passing week.

Considering the crowd-control firehose of information we’ve been blasted with; it is easy to forget some significant things we learned. So, let us recall a few. Start with the fact that PMGs sales growth was continuously fantastic, even into 2023. With revenue growth like that, the only way to end up insolvent is to make grievous errors or miscalculations on the back end.

Next, consider this comment from his Alan Cathcart interview: "we are at the leading edge of electro-mobility. At KTM we slowed down for two reasons. First of all, integrating Husqvarna, because to assimilate such a big brand took time".  So, on one hand he’s expressing his desire to claim pole on electrics, which is a completely separate business to develop (!!!). Then, he admits that assimilating an acquisition not only takes time, but it also takes more time than they planned. So…he knew this, but all indications are he ignored it and continued a buying binge.

Remember CSO Florian Kecht’s admittance in Australian publication MCNews:  "Florian also underlined that the group had realized that their strategy to relentlessly chase growth had to end, because it was leading nowhere. He said that they saw this coming at the end of 2023, and a decision was taken then to change tack in order to protect the brand and the company.  Growth of around ten per cent each year was proving not sustainable and that they needed to make major changes, including a cultural change within the company." This indicates the team figured out at least a year ago they were too aggressive. But how long before? Who realized this? Were they able to express it to Pierer? Was he willing to listen?

In my view the most obviously damning detail was that they were issuing warnings – multiple ones – publicly in their corporate communication yet not slowing production. This one single egregious failure to act jammed up the company and everyone down the supply chain with inventory at a time when sales were slowing, and they knew it. Simultaneously it made tapering off impossible, something that would have made life less painful for the vendors and employees now frankly getting screwed. Don't lose sight of this, some those people are really going to get hurt.

If that doesn’t form an opinion, remember that Pierer has been and continues to be pursuing the acquisition of fire equipment company Rosenbauer, while PMG is falling apart.

Of course you do not have to accept my conclusions as your own. But I invite you to run everything you have read or seen on this subject through your processor again. All the acquisitions, the labyrinthian corporate structure, duplications across the brands, wide-ranging racing endeavors, etc. with the intent of coming up with your own theory of why they are insolvent. But this time, do that without assuming they know something you do not. 

Because it's clear now, that they didn’t.

BP

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