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Investment to Fund SRAM Advocacy, R&D

Published September 7, 2008

FRIEDRICHSHAFEN, Germany (BRAIN)—SRAM’s Stan Day has two items on his to-do list now that the company has received a financial infusion from a Wall Street investment bank. He wants to continue developing innovative products—and he wants to give the advocacy community a $2 million annual boost to promote cycling.

Day, president and CEO, said Friday at Eurobike that SRAM spent almost one year choosing the right private equity partner. It settled on Lehman Brothers Merchant Banking, a subsidiary of Lehman Brothers.

The banking group took a 40 percent stake in the company. It plans to reduce its investment to 20 percent over five to 10 years as SRAM buys back shares. Lehman will also get two seats on SRAM’s seven-member board of directors.

Lehman’s investors expect a 20 percent annual return on their investment. “That’s typical,” Day said.

Day declined to reveal how much Lehman is investing in the deal, which should close in early October. “We won’t give that figure out,” he said, grinning.

So while some aspects of the deal remain under wraps, Charlie Moore, a managing director at Lehman’s subsidiary, noted that SRAM occupies an attractive position in components manufacturing as a strong No. 2 to Shimano. He also had high praise for the company’s management.

So what will SRAM do with its treasure? Besides boosting R&D, Day said he would consider acquisitions of key niche brands, similar to its earlier purchases of RockShox, Avid, TruVativ and Sachs. “But there’s nothing under consideration at the moment,” he added.

“We think there’s lots of opportunities available in the industry, but we want to stay focused and bring innovative products to our customers,” he said. He also ruled out—at least for now—any ventures outside of the bicycle industry.

Also unusual is SRAM’s commitment to set aside $10 million for cycling advocacy. Day said the company would invest $2 million a year, apportioned among the United States, Taiwan and Europe. The company will entertain proposals from such advocacy groups as IMBA, Bikes Belong and others.

—Marc Sani

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