Hero buys 49.2% in US bike maker

The acquisition would give Hero access to high-margin America and Europe markets

In its first acquisition abroad, Hero MotoCorp (HMC), the country’s largest two-wheeler maker, has bought a 49.2 per cent stake in US-based performance (race) motorcycle maker Erik Buell Racing (EBR), for $25 million (nearly Rs 150 crore).

Pawan Munjal, managing director and chief executive officer of HMC, said: “This is the first time Hero has gone out of India to buy equity in a company. This is the first step in terms of financial investment on the road towards globalisation of the Hero brand.” Hero infused $15 mn of the purchase money into EBR on Saturday through its wholly owned American subsidiary, Hero MotoCorp (NA). The remaining amount would be transferred in a single tranche in the next nine months.

The management would continue to be led by Erik Buell, the current chairman and chief executive officer. HMC would send two directors on the company’s board. The development comes a little over a year after Hero had entered into a design and technology sourcing pact with EBR, to strengthen its research and development capability.

Munjal added, “This extends our relationship. We will be working with EBR even more closely now and get into selling and marketing of both EBR and Hero brands of products in both international and domestic markets.” The acquisition would give HMC access to the high-margin markets of America and Europe. The companies are in the process of working out the brand under which the products would be sold in global markets.

EBR is to invest the stake sale to add capacity and develop its network in Europe. Overall, EBR expects to sell 20,000 units in 2017, from 65 high-end bikes in 2012. “We will continue to pursue the path of inorganic growth, in addition to organic growth. The pace will depend on what we find,” said Munjal.

Hero also has tie-ups with AVL, an Austrian engine developer and manufacturer, and with Engines Engineering, an Italian two-wheeler design company. To expand its global footprint, HMC is looking at setting up an assembly facility in Colombia, South America, by mid-2014. The company is present there through the distributor of its erstwhile partner, Honda Motor Company.