For more than 20 years, Chance Industry's old-fashioned trolley cars and heavy-duty transit buses were built in the shadow of the company's principal business - manufacturing Ferris wheels, carrousels, and other portable and park amusement rides. The streetcars and buses were a successful product line for the Wichita, Kansas-based company but never its focus, resulting in an ancillary business of unrealized potential. This changed when an affiliate of American Capital Strategies, Ltd. (Nasdaq:ACAS) bought the operations in partnership with Coach management and liberated the business from its parent company. As a result of the acquisition, Chance Coach is a stand-alone company with a new identity and fresh opportunities for future development. The new company has stepped front and center as it expands its product line, increases output, and gives employees an opportunity to own part of the company through an employee stock ownership plan (ESOP).
"This company is every investor's dream. It has a top-notch management and employee team, quality products, a strong market position and substantial growth potential. We at American Capital are very excited about Chance Coach and its future," says ACAS Principal John Freal.
Designed for heavy-duty transit operations, Chance Coach vehicles travel the roads of revitalized inner cities, airports, and suburbs, from the narrow cobblestones of Annapolis, Md., to the streets of Chicago's suburbs. Unlike lighter weight shuttle vans, the streetcars and buses are constructed on a purpose-built transit chassis, creating a heavy-duty vehicle which lasts for years. In fact, some 90% of the vehicles made by Chance Coach are still in operation, and a number of them have logged more than one million miles.
Chance Coach's showcase product is a replica turn-of-the-century streetcar with all the trimmings: mahogany side panels and window trim, brass rails and handcrafted hardwood seats, leather handstraps, and a replica 1901 bell. Embarking on a downtown revitalization in the early 1980's, San Antonio was the company's first customer for the replica streetcar. The market for these heavy-duty, open-air vehicles grew, particularly in the Southwest. In 1993, the streetcar was enclosed, upgraded and remodeled to conform to new access requirements for disabled passengers (as laid out in the American with Disabilities Act) and more stringent EPA regulations. More than 350 are now in operation.
The company also makes a 23-seat, 26 ft. long bus for transit operations in rural and mid-sized communities as well as in feeder routes in larger municipalities. This vehicle has also been highly successful. Designed to complement city buses and serve the smaller niche market, more than 440 have been built. In addition, an articulated two-unit vehicle manufactured by Chance is widely used in airport and shuttle service, with some 68 in operation from Honolulu to Washington, D.C.
In early 1997, the owner of Chance Industries made the strategic decision to spin off the streetcar and bus division to concentrate on its core amusement ride business. Although profitable, the coach company had been constrained by the shared facility in Wichita and was in second position when competing for manufacturing space, fabrication time and parts. Most importantly, the owner's heart was in the rides operations and little new product development was invested in streetcars and buses.
In funding the coach business spin off, ACAS provided its expertise and one-stop financing capability to create the new company. The transaction represented an opportunity to acquire a business which was ancillary to the seller's primary operations, team up with the employees and management and create a strong, stand-alone business. The transaction closed on March 4, 1998, with ACAS providing $15 million in debt and equity in addition to management's investment. ACAS shares its ownership with the management team and will also participate in setting up an ESOP which will allow the employees to purchase up to 10% ownership of the business.
Chance Coach's two-year production backlog of firm orders and options has provided an excellent foundation for its breakout into a stand-alone operation, according to Scott Culbertson, President of Chance Coach. The backlog runs at orders for 140 units. Current production is planned at 89 units for 1998 and 100 units for 1999, which will more than double sales over 1997 levels.
In anticipation of this future growth, Chance Coach has stepped up production since moving into has its own facility at the end of 1997. As of March 1, the company increased its output form one to two vehicles a week and plans to move up to three units by the fall of 1999. To meet increased production, Chance has hired and trained new employees, bringing the total to 95 -- all of whom will participate in the ESOP.
Chance Coach management has also focused on new product development. It is now exploring the concept and design of a new low-floor small bus which will eliminate the need for wheelchair lifts. Instead of lifts, the buses will feature lower cost, easier to maintain ramps. Many municipalities have an interest in these buses and the company estimates that sales could rise to over 100 units annually. The company also has plans for a lighter weight, lighter duty streetcar replica and a natural gas version of its transit bus.
Another potential market is the National Park Service (NPS). As NPS seeks to prohibit private cars in its parks, it is looking for appropriate vehicles to transport visitors. Chance Coach's AMTV articulated units are designed for this type of transport, and the company is currently bidding on a contract in Zion National Park.
In addition to these new opportunities, the coach market itself is ready for expansion. Many municipalities are re-sizing their bus fleets by adding smaller, more cost-effective buses which produce less wear and tear on roads. Another growing customer base are cities that are instituting a "trunk line" system with smaller buses on feeder routes and in downtown areas. And, in all locations, streetcar trolleys continue to be popular with both tourists and residents.
Since the acquisition, many positive changes have occurred not only in the company's products and markets, but for its employees as well. "The ESOP, which has just been put in place, has brought a high level of interest and excitement in the company," says Culbertson. The initial impact has been impressive, he says, citing positive behavioral changes. "They are starting to think like owners, not employees, and have a positive outlook for the future." And the outlook at Chance Coach -- no longer in anybody else's shadow -- is positive as well.
Chance Coach Web Site
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