Manchester Tank

Topics: Due diligence, Propane, Revenue Pages: 18 (4869 words) Published: April 1, 2013
Michael Rolland
Managing Director
William Cohan
Merrill Lynch & Co.
250 Vesey Street
New York, NY 10281-1330
Fax: (212) 449-9283

Dear Michael Rolland,

Our team, which has exceptional experience in manufacturing, and financial areas is highly interested in making a bid to acquire 51% of Manchester Tank’s stock. We valued the company at $120M for 100% stock, and we would like to make a bid price of $61M to acquire 51% of the company. We believe that our experience in manufacturing and financial areas will enable us to grow Manchester Tank along with the Reifschneider brothers both locally and internationally. Our strategy to operate and grow the business, as well as all the other deal terms and details are explained thoroughly in this document.

I. Strategy

1. Current Product Line Strategy – We have analyzed Manchester Tank’s product line and have determined a distinct strategy for each of their current products:

a. RV Cylinders – Sales of RV Cylinders reached $15M in 1995 and it makes up 11% of MT’s revenues. Revenue from RV Cylinders and unit sales are expected to remain constant. MT controls 65% of the travel trailer market and 75% of the motor home market. With strong customer relationships with Fleetwood, Coachman and JayCo we feel that RV Cylinders is an integral part of MT’s product line. But market demand for RVs has fallen recently so our strategy is to maintain this product line and increase operational efficiencies through a rapid one year adoption of Manufacturing Resource Planning “MRP II” and utilizing our international growth plan to negotiate better pricing from MT’s suppliers.

b. Gas Grill Cylinders – Sales of gas grill cylinders represents 23% and over $32M of MT’s revenues. MT currently supplies the 5 largest grill manufacturers: Sunbeam 50% of products, Thermos 100%, W.C. Bradley 15%-20%, Weber-Stephen 90% and Fiesta Grill 30%-40%. Manchester tank owns 45% of the US gas grill market, which is estimated to be growing between 5%-12% each year. Our strategy is to grow this product line through our current customers. Our goal is to have MT’s grill cylinders in at least 75% of our top clients’ products. Currently the CEO leads sales within the gas grill cylinder line. Our strategy is to hire another VP of Sales to take much of the sales burden off the CEO while still using the CEO’s existing relationships with the 5 major manufacturers. MT sales and marketing strategy for gas grills will include a focus on their unmatched quality and safety features, including the new addition of the “Stop-Fill” mechanism.

c. Mass Merchandising –With a CAGR of 38% for revenues and 33% for unit sales from 1992-1996, mass merchandising has a huge growth potential in the next 5-10 years. Mass merchandising is witnessing the boom of home improvement stores such as Lowes and Home Depot along with wholesale clubs such as BJs and Costco. As customer preferences change to these stores, we plan to ride the growth wave and position MT’s propane tanks as premium products with an emphasis on quality and safety features such as the “Stop-Fill” mechanism.

d. Air Receivers for Air Compressors – This product line represents 15% of MT’s revenues and is predicted to grow slightly in the next 5-10 years due to the increase in use of air powered tools. We plan to maintain this product line and hire more engineers to provide better customization for MT’s largest customers. More engineers will allow us to improve MT’s already excellent customer service.

e. Propane Cylinders–Propane cylinders are MT’s largest product line, making over $35M and accounting for a quarter of MT’s revenues. This area has seen significant growth in revenue growth and unit sales with 1992-1996 CAGR of 15% and 35% respectively. We plan to grow this unit through overseas markets in India, Australia and New Zealand where the most popular US product, the 420lb cylinder, is used for cooking,...
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