As lockdowns gripped Europe in late 2020, KKR was battling to plant its flag in one of the pandemic’s winning industries.
The private equity pioneer lost out that year in its bid for German road bike maker Canyon, a darling of Instagram. But bankers later pitched KKR’s dealmakers a consolation prize: Accell, a less modish Dutch manufacturer.
It led to an investment that could become one of the New York buyout giant’s worst in Europe.
KKR launched a €1.8bn bid to take Accell private with the backing of its largest shareholder, Teslin, in January 2022. That month marked the zenith of a deal boom fuelled by cheap money and optimism about how the pandemic would spur the adoption of new technology and permanently change both work and leisure habits.
By August when Accell delisted from the Amsterdam stock exchange, central banks were battling to contain inflation with interest rate rises, while consumers were squeezed by soaring energy costs in the wake of Russia’s full-scale invasion of Ukraine. The dealmaking boom was over.
Less than two years later, Accell found itself struggling under the burden of its debts as a post-pandemic sales slump left it burning through cash. The bikemaker had little choice but to turn to its lenders for help. Last month, Accell finally closed a restructuring deal that offered a lifeline, cutting €600mn from its €1.4bn debt load.
But for KKR and Teslin, which had retained a minority stake in Accell, the price of that reprieve was steep. Though they kept control of the company, the duo had to hand roughly 20 per cent of the shares in Accell to a group of lenders, and KKR had to write down the value of the €1.1bn equity investment it had made only 30 months earlier.
The two partners who led the deal for KKR are no longer at the firm, although a person familiar with the circumstances said their departures were unrelated. Next month, Accell will be on to its third chief executive of KKR’s ownership.
Beyond the deal’s implications for KKR, Accell’s woes offer an early taste of the pain that may lie ahead for private equity groups that piled into a trillion-dollar dealmaking boom between late 2020 and early 2022. Many buyout executives and investors now say the wave of deals could be among the worst in the industry’s history.
“There’s going to be a real reckoning for the pandemic-era vintage,” said Dan Rasmussen, founder of Boston hedge fund Verdad.
The quiet roads and spare time afforded by the Covid-19 lockdowns lit a small fire under Europe’s cycling industry, helping to push Accell’s sales 17 per cent higher to €1.3bn during 2020.
When KKR and Teslin launched their bid at the start of 2022, they believed there was still room to improve the business. Accell had already been on an acquisition spree, buying brands in the UK, Nordics, France and Germany. But KKR saw avenues for growth — as well for cutting costs by integrating operations and squeezing better terms from suppliers, according to people with knowledge of the matter.
The timing was unfortunate, and things quickly became difficult.
An executive at a rival buyout group said they had steered clear of Accell because they believed the business was “benefiting from a boom that would not last”. Another person familiar with the business said KKR’s investment “wasn’t the wisest timing”, adding that the firm “bought the company at peak.”
KKR had anticipated dwindling demand for traditional bikes after the pandemic, and in 2022, Accell’s traditional bike sales fell by 4 per cent. But the US private equity house saw a bright future in e-bikes, where Accell was a market leader.
That year, however, Accell’s e-bike sales growth was lower than expected, as supply chain disruptions led to shortages of some key components. And the buyout group had underestimated just how much the company had over-ordered other parts in response to heightened pandemic demand.
Inventories ballooned. Accell’s components store climbed by 50 per cent to €540mn in 2022, its accounts show, and its collection of finished bikes and other products almost doubled to €380mn.
Accell was not alone in over-ordering. Manufacturers across the industry ordered reams of parts in the “belief that [pandemic-era] demand would continue post-Covid, which it didn’t”, according to Kersten Heineke, a mobility industry consultant at McKinsey.
To shift the stock, Accell had to offer up discounts in 2023. Revenues fell 10 per cent that year. It slashed the value of its inventory, taking an impairment that sent earnings from about €90mn in 2022 to a loss of €330mn.
By the middle of 2023, Accell had turned to its shareholders to ask for more money. KKR and Teslin would ultimately extend the company some €300mn in loans before the restructuring completed, including €50mn when its Babboe cargo bikes, made for carrying children, had to be recalled because of safety concerns.
One lender, who was “very unhappy” with KKR over how the Accell investment played out, said it was “very unusual” for a “prestigious” private equity firm to start thinking about restructuring a business just two years after buying it.
KKR had financed the take-private in 2022 with €1.1bn of equity, topped up with €700mn of junk-rated debt taken on by Accell. By the time the lenders that underwrote the buyout loan at the time of the deal came to sell it on in September 2022, they had to accept a deep discount because of wider shifts in the debt markets.
Then, by June 2024, Accell was in restructuring negotiations after a bad biking season forced it to draw up a new business plan.
After more than 20 meetings between the advisers to Accell and the lenders, the company announced in October that it had struck a deal and the operating company’s debts would be cut from €1.4bn to €800mn.
KKR and Teslin had to convert a sizeable chunk of their shareholder loans to equity, according to two people familiar with the situation, with the rest reinstated. Together with the external lenders, the group kicked in another €235mn to keep the company going.
KKR said it had been a “supportive shareholder” of Accell, “including through a deep market correction that impacted the whole [bike] industry”. In a joint statement with Teslin, it added that “together with the operational improvements made over the past year and strengthened management team”, the restructuring agreement “is an important milestone towards enabling the delivery of Accell’s strategic plan.”
Tjeerd Jegen, the outgoing chief executive of Accell, said the company was a “scaled player with a strong portfolio of brands and significant synergies to be achieved” that “will be able to come out of the industry-wide downturn on a stronger footing.”
That rebirth may take a while. Rating agency Fitch noted last month that while the restructuring had materially reduced the company’s debt, and leverage should, over time, reduce to a more sustainable level, it saw “high execution risks” in Accell’s turnaround plan, given “the weak implementation of its previous initiatives since 2022”.
The disappointed lender agreed, noting that the company’s senior management had changed frequently in a short period. “KKR’s business capability in the bike manufacturing business is not that good,” they suggested. And “still, it seems, that the market has not been recovering”.
As one of the first pandemic era private equity purchases to go into a full restructuring, Accell may be the canary in the European coal mine for the pandemic crop of private equity deals struck at high valuations. More in the US have already started to sour.
“The danger signs of real trouble for this cohort of deals will be longer hold times and more amend and extend debt deals,” said Rasmussen of Verdad.
A report published earlier this month by consultancy Bain & Co observed the similarities between Covid-era vintages of private equity fund and those launched immediately before the global financial crisis.
“Those vintages took over nine years, on average, to return capital to investors”, Bain noted: two years longer that the normal private equity fund lifecycle. The pattern raises “fears that the capital lodged in current portfolios will take equally long, or even longer, to pay back”, Bain said.
The exceptionally large funds raised during the fever of 2021 and 2022 and the lofty prices they paid for assets add to the stakes.
As Bain put it, “What history tells us is that periods like this take time to unwind.”
