Paul: We’re back with Rob Tetrault, he’s a portfolio manager at National Bank Financial. He’s based in Winnipeg. He comes to Toronto every now and again and when he does, we ask him if he can sit in with us. It’s a great day to have you here because Linamar, one of the biggest auto parts companies in this country and indeed on the planet, has made an acquisition outside of its core business, which of course is auto parts, into the agricultural sector. It’s purchasing a company called Macdon, which I had not heard of prior to today because it’s not a publicly traded company but you’ve heard of it because it’s a Winnipeg company.
Rob: It is. I love coming on here and talking about Winnipeg stories or Manitoba stories. I’m a proud Manitoban. This is a great story. This is a family-owned business. They’ve been in Winnipeg for 70 years or so. Very successful. A lot of people work there. It’s one of the big players in Winnipeg. I actually know some of the executives there and they sold for a billion dollars. Obviously, for them, we don’t know what the multiple is. We will never know that. It’s a private company but obviously, if they decide to sell a family-owned tightly held company, it must have been a good price. I also like it for Linamar as well.
Paul: Why do you like it from Linamar’s point of view? It’s clearly a diversification play by Linamar out of the core market segment. Linamar does have an agricultural segment already. It’s based in Hungary I believe. These operations are going to be combined in a corporate way with the Hungarian operations. Why do you like it from Linamar’s point of view?
Rob: Two reasons. One, obviously it’s a creative and it’s immediately adding to cash flow. They will be able to obviously…and I hate that some probably Winnipeggers might lose their jobs long term, but they will be able to add to the bottom line simply by economies of scale. Two, the big one. Anytime I see a deal, Paul, I always look at the metrics, “Did they issue debt or did they raise capital?” They did not raise capital for this, they issued debt, which means they’re paying 4% or whatever their rate is, probably in the four and a half range. They’re getting something a creative at the 10 to 12 percent range so that’s going to be a multiplier. I think that’s a great deal for them.
Paul: You like the fact that the shares are not being issued and the share base is not being diluted down.
Rob: Correct. We don’t want dilution. If I’m an owner of Linamar I don’t want dilution, I don’t want to dilute 10% just to get 10%. I want to be able to pay with debt. Provided the leverage ratios make sense, and I think they do for them, I think no dilution. Likely a very good play.