Briggs

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Briggs Stratton

• Where is My 40 million and
• What Do I Do Now?

Group 12 K. Borisjuk, R. Brecher, C. Esteva, J.
Gibbons, J. Zbiegien December 1, 2005
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Agenda

• Problem Statement
• Industry overview
• Key Strategy Drivers
• The Murray Acquisition
• Option Analysis
• Recommendation Rationale
• Questions

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1. Problem Statement
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Problem Statement

• Murray bankruptcy forces BS forward integration
• Choose strategy to integrate Murray lawnmower
  production into BS existing, small engine
  division

• Assemble lawnmowers within existing engine
  facility (outsource components)
• Brownfields expansion, adjacent to existing BS
  engine facility
• Greenfields expansion into adjacent community

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Problem Statement
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2. Industry Overview
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What is Briggs Stratton?

• Worlds largest designer, manufacturer, marketer
  and service provider of air-cooled gasoline
  engines
• Sells to OEMs of lawn garden, industrial and
  consumer products
• Leading designer, manufacturer and marketer of
  portable power equipment
• Sells to consumers through retailers and an
  independent dealer network

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Key Customers
OEMs
RETAILERS
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Market View
COMPETITORS
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3. Key Strategy Drivers
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Key Strategy Drivers
Competitive Strategy
Competencies
Operations Strategy
Resources (Capacity Portfolio)
Processes (Activity Network)
Demand
Supply
Technology
Timing
Size
Innovation
Location
Type
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Briggs Strattons Value Proposition
Competitive Strategy
Develop, manufacture at low cost, market, and
service high value power for a broad range of
power products 
Competencies

• Strong brand name, known for quality
  reliability
• Highly efficient, cost effective manufacturing
• Worlds largest service network

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Resource View
Resources (Capacity Portfolio)
For a typical domestic facility
Size
250,000 ft2 floor space, 3.27 million engines per
year
Engine produced every seven seconds. Two shifts
per day for assembly. Machining operates three
shifts per day, seven days per week.
Timing
Plants specialize in 1 2 engine families -
highly standard with variation introduced at end
of line in trim options
Type
Location
Near universities with reputable engineering
schools
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Process View
Processes (Activity Network)
Supply
Lean operations, makes many of its own components
Continuous / flow shops with few variations at
the end of the line
Technology
Innovation
Product and process
Demand
Mostly stable schedule is fixed well in advance
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4. The Murray Acquisition
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Strategic Acquisition Era
present an ever more compelling value
proposition to consumers of our products and
superior returns to our shareholders CEO John
S. Shiely
2001
2004
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The Murray Acquisition

• Murray files bankruptcy, owes Briggs 40M
• Briggs purchases assets for 121 million
• Defensive acquisition, not an operational fit
• Eliminated inefficient overcapacity in push
  lawnmowers
• Contracted out snow throwers and riding
  lawnmowers
• Opportunity to reintroduce opening price point
  lawnmower under the Murray Brand
• Capture additional value for Briggs Stratton
• Create sustainable cost advantage through OE
  infrastructure
• Preempt Chinese entry into US market

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5. Option Analysis
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Option I

• Add a lawnmower assembly line within existing
  engine facility in Poplar Bluff, MO
• Outsource manufacturing of components to make
  space for assembly
• 1.75 million Capital Expenditure

Poplar Bluff, MO
Components outsourced
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Option II

• Brownfields expansion, adjacent to Poplar Bluff
  facility, for assembly of lawnmowers
• Engine/components manufactured in existing Poplar
  Bluff facility
• 11 million Capital Expenditure

Poplar Bluff, MO
Poplar Bluff, MO
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Option III

• Greenfields expansion purchase existing building
  in Sikeston, MO and build lawnmower assembly
  facility
• Engine/components shipped from Poplar Bluff
  facility ( 40 miles)
• 11 million Capital Expenditure

Poplar Bluff, MO
Sikeston, MO
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Key Assumptions
Year 1 base case incremental contribution 10.5M
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Scenarios

• Base Case 60 probability
• Demand growth of 2 a year, declining to 0.5 a
  year
• Low Case 30 probability
• Aggressive entry from China
• Demand declines 30 from year 1, over 10 years
• Upside Case 10 probability
• Demand growth of 4 a year, declining to 2.5 a
  year
• Option I hits capacity constraint of 1.8 million
  units / year

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Other Considerations

• Option I
• Need to outsource components
• 20 higher unit costs
• Lose control over IP (to China or otherwise)
• 5 million reduction in engine profits
• 1 month shutdown to reconfigure line
• One-time loss of 2 million in engine profits
• Results in lower lawnmower capacity

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Other Considerations

• Option II
• Labor pool inefficiency in Poplar Bluff
• Labor costs increase by 0.2 of revenues
• Option III
• Transportation costs from Poplar Bluff to
  Sikeston
• 500 per run of 2,000 engines 750,000 / year
• Additional management and overhead costs
• 500,000 per year fixed cost

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6. Recommendation Rationale
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Recommendation
Pursue Option II Brownfields Expansion Adjacent
to Poplar Bluff Facility
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Rationale
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Questions
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Appendix
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History of Briggs Stratton
Appendix I Briggs Stratton Background

• Company formed in 1908 to produce small engines.
• Vehicles
• Washing machines
• Outboards
• Small engines
• Moved majority of manufacturing to five southern
  facilities in the 1990s
• Began Chinese operations in 2002
• Began acquisition to achieve growth in 2001

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Small Engine Market
Appendix I Briggs Stratton Background
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Sources
Appendix II Sources

• Briggs Stratton/Murray Background
• www.briggsandstratton.com
• The Legend of Briggs Stratton
• SEC filings by Briggs Stratton, Generac
  Portable Products
• Analysis of options
• Briggs Stratton Simplicity Manufacturing
  Finance
• US Census Bureau labor force data
• European and Australian Chinese market share
• OPEI/EPA market growth data

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Appendix III Summary of Analysis Results
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Appendix III Summary of Key Assumptions