Hero Buys a $25-Million Stake in Erik Buell Racing
More than 3 years of hard work and lean operating have now paid off for Erik Buell with the recent announcement that New Delhi-based Hero MotoCorp, India’s largest motorcycle manufacturer, has purchased a 49.2% stake of Erik Buell Racing for a cost of $25 million. Acting through its newly formed American subsidiary, Hero MotoCorp Ltd., the Indian firm has invested $15 million already, with $10 million to follow over the next 9 months. This is Hero’s first-ever equity partnership with an overseas company. Buell, who retains majority ownership in his company, will remain chairman and CEO of EBR.
The relationship between the two firms began with a “strategic alliance” in early 2012, with Hero providing EBR financial support—including sponsorship of its AMA Superbike racing effort—and EBR providing the Indian manufacturer with technical expertise. At that time, Hero had recently exited a 26-year joint venture with Honda and needed an engineering partner who could help develop new and more advanced products. EBR assisted with a number of projects to improve existing Hero product and also designed new models for sale on the Indian market—including the prototype Leap, a gas/ electric hybrid scooter. Now that effort will be expanded, with EBR designing many more new products for Hero. At the same time, this arrangement gives EBR the financing it needs to expand its own high-end sportbike line. Buell says the two product lines—EBR and Hero—will remain separate and independent.
Both companies also have an eye on global expansion, exploring opportunities to introduce EBR motorcycles to the Indian market and, at the same time, eventually bring Hero products to America and other export markets, which wasn’t an option for the Indian firm under its former arrangement with Honda. Hero CEO Pawan Munjal says he hopes to sell an astounding 10 million motorcycles annually by 2017—a four-million-unit increase over current annual sales—with 10% of that figure to be sold outside India. Having high-tech, EBR-designed products that can compete globally will be essential to meeting that goal.