One week ago, the equity owners of Camping World filed documents for an initial public offering that would turn the private company into a publicly traded entity and generate millions in liquidity for the national dealer network's parent group.
What the company will do with the money, which should be in the ballpark of $200 million, is not yet known, but information in the documents filed with the U.S. Securities and Exchange Commission, gives some indication of the choices available if the company is approved for the offering of public shares, according to University of Florida Professor Jay Ritter.
Ritter, who has written and lectured extensively on corporate finance and public offerings for nearly four decades, said that Camping World has some options with how it could use the money raised in the public selling of shares, which could begin within the next two months.
“In situations like this, where the company is profitable and doesn’t need the money, it's got more flexibility than, say, a bio-tech company that’s got to worry about how to pay employees next month because it's running out of cash,” Ritter said.
With a reported net income of $178 million last year, up from about $125 million in 2014, it seems clear that Camping World is not trying to generate cash to stay afloat.
“The motivation might be to either raise money to make acquisitions, or just for selling shareholders to be able to cash out,” Ritter said.
Plenty of earnings before the offering also means that the cash generated by the public shares is unlikely to drastically impact the Camping World business model.
That doesn’t necessarily mean the company, which has historically expanded its national network of RV dealerships by way of acquisition, will stand-pat on its purchases after the offering.
While some of the equity ownership group may look to cash in paper wealth during the current market upturn, the stocks could also provide the ownership group with a new financing avenue.
“It’s not at all uncommon to be a little more aggressive with acquisitions after a company is public,” Ritter said. “For one thing, they might be able to make a stock-financed acquisition by issuing additional shares of publicly traded stock, rather than using cash to make an acquisition.”
Camping World Holdings, which will be traded as CWH on a yet-to-be-named exchange, caps the public trading debut at $200 million in shares.
A $200-million cap on the IPO means that the ownership group of the company is likely to have plenty of equity left over after the offering to issue shares at a later point, if leadership chooses, for the purpose of stock-financed acquisitions, among other things.
Based on Camping World’s 2015 earnings, size and maturity, Ritter estimates the company might release public shares of 11 percent of the company’s overall equity, keeping 89 percent.