It’s been a rough year for iconic car brands like Recaro and BBS, and now another one is in financial trouble. Less than a year after Wheel Pros rebranded itself as Hoonigan, stripping brand equity from the motorsports, merchandise and media company to further its own ends, the firm now known as Hoonigan filed for bankruptcy on Sept. 8.
It’s a disappointing but not surprising turn of events for a brand devoured by private equity, but the good news is that the Hoonigan name isn’t disappearing.
Here’s what the firm stated in a media release:
Wheel Pros, LLC (d/b/a Hoonigan) and certain of its North American-based affiliates (collectively “Hoonigan” or the “Company”), a leading provider of aftermarket vehicle enhancements, today announced that it has commenced an in-court financial restructuring process to position it to drive long-term growth. The Company has entered into a Restructuring Support Agreement (“RSA”) with a majority of its debtholders through which it expects to eliminate approximately $1.2 billion of the Company’s debt and secure up to approximately $570 million of new capital, substantially improving the Company’s balance sheet and financial position.
Here’s something shocking: that $1.2 billion in debt is only a portion of the total $1.75 billion in debt on the company’s books. Holy hell, how on earth did this happen? Well, part of it might be due to relentless acquisitions. Under the backing of Clearlake Capital, Wheel Pros went on an acquisition tear, gobbling up brands left and right.
In 2021, Wheel Pros acquired Hoonigan. In early 2022, Wheel Pros acquired the throtl e-commerce platform for car parts, and Dilshat Erkin, a VP at Clearlake Capital, described the event in a media release as “Wheel Pros’ third acquisition in the last six months.” A few months later, it bought Transamerican Auto Parts from Polaris, diving deeper into the world of off-road accessories. If you aren’t immediately familiar with Transamerican Auto Parts, it owns 4 Wheel Parts and its affiliated house brands, including Teraflex suspension, Smittybilt, Rubicon Express, G2 Axle and Gear, and Pro Comp. Acquiring that many companies in that short a timespan require either substantial cash reserves or, as the kids on Wall Street say, levering yourself to the tits. It wouldn’t be surprising if some of these acquisitions used a leveraged buy-out model, i.e. growing quickly using the cash of others.
However, even with an overabundance of brands under its umbrella, I’d have expected Hoonigan to still accrue some solid revenue, so where the heck did it go? Well, while salaries at privately held firms are opaque, private equity’s general modus operandi is to pump money into companies, extract profits, and then package off assets, either for a profit (via sale or public offering) or, sometimes, through bankruptcy.
Due to the goal of a quick turnaround, these arrangements often come with absurd growth targets, cultural disruption, and cost-cutting that can seriously scare off talent who helped build brands to what they were before they sold out. Simply look at the lineup of Hoonigans who’ve left over the past year or so, from Vin Anatra to Hert to Zac Mertens to Brian Scotto himself. It’s been a sad arc for the Hoonigan brand, made sadder by the number of brands attached at the hip to Wheel Pros.
Just to get a sense of the scope Wheel Pros has, let’s list off its brands real quick: American Force, American Racing, Asanti, Black Rhino, DUB, EFX, Fairway Alloys (you know, for golf carts), Foose, Fuel Off-Road, Gorilla, Helo, Kinesis, KMC Wheels, Motegi, Moto Metal, MSA Offroad Wheels, Niche, Performance Replicas, Petrol, Poison Spyder, Pro Comp, Rotiform, Smittybilt, Status, TSW, U.S. Mags, XD Wheels, Headlight Revolution, Morimoto, The Retrofit Source, G2 Axle and Gear, Logiq Air Suspension Solutions, Readylift, Rubicon, Teraflex, Zbroz, in addition to Hoonigan, Throtl, and the aforementioned 4 Wheel Parts digital and retail stores.
In among that mix are some hugely popular brands, so anyone looking to buy a set of Rotiform wheels or Morimoto projectors is probably wondering what happens next. Well, thanks to falling under Chapter 11, operations will continue for now, and overseas activities will remain unaffected. In the medium term, here’s what will probably happen: Hoonigan has filed a pre-packaged restructuring support agreement, and if creditors agree to the terms, they could take majority ownership of the company under the terms of the restructuring agreement. Should everything go according to plan, operations won’t be suspended, although it’s hard to say in certain terms what this means for Hoonigan as a media house.
Now, there is another potential outcome — things don’t go as planned. If the court in Delaware doesn’t find that the restructuring agreement is feasible then liquidation may be required. However, pre-packaged restructuring agreements have a pretty good historical track record of court approval, so it’s likely that the lights will stay on, albeit with different forces guiding the ship. Mind you, not every asset might remain with Hoonigan, even if everything goes well. For example, Business Wire reports that Hoonigan is getting rid of 4 Wheel Parts and its associated assets, along with the Poison Spyder brand, signing a purchase agreement with the American subsidiary of Australian off-road parts firm ARB. However, don’t expect any interruptions in operations over there.
As it stands, there’s a 60-day window for approval of the restructuring agreement to be reached, so we should know by early November exactly how things will proceed. Even in a worst-case scenario, the brands involved still have equity and someone will want to acquire them, but even in the best-case situation, the cycle of private equity ownership likely won’t be broken. To get a picture of how long this purgatory could last, look at BBS Wheels, the German division of which has declared insolvency five times since 2007. The Hoonigan name is more likely than not to carry on, but it probably won’t be what we’re used to.
(Photo credits: Hoonigan, Rotiform)
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“ It wouldn’t be surprising if some of these acquisitions used a leveraged buy-out model, i.e. growing quickly using the cash of others.”
When the suitdicks do it, it’s savvy business.
When I do it, it’s a Ponzi scheme.
Where’s the justice?
4 Wheel Parts sold off all their stores in Houston last year. Figured at the time that was a bad omen, now I’m not surprised at all.
Remember in “Good Fellas” the mob boss take a part of the bar and then milks it by buying items and selling them out the back door at a loss. That’s exactly what these companies do. They take control run up as much debt as they can then let the company burn to the ground after they have milked every dollar out.
This is why running an actual small business in this society is a goddamn nightmare minefield. You look at your balance sheet trying to figure out why the customer marketplace thinks you’re expensive but the employee marketplace thinks you’re cheap yet, as an owner, you wait until everyone else gets a raise before giving yourself one. Those private equity firms circle like sharks waiting for owners desperate to get out of that cycle and focus on delivering great products and services while paying a good wage. They promise to use their experience and business acumen to help you find efficiencies, reduce overhead, and make you more competitive. In the end, they destroy the brand you built so carefully, crush the creativity and spirit of your employees, and then sell the rest off for parts. I’ve watched it happen to other firms and I do everything I can to stay out of the jaws of those sharks.
Goddamn vampire capitalists are at it again.
Finally a well written article explaining all the name-swapping and how Hoonigan became broke.
“The old site” and their “/“ friend articles made zero sense to me.
Hey, that sounds familiar. It’s exactly what The Drive’s private equity bunghole overlords did after they bought them.
Private equity firms who promise to invest in brands, be different than those other herbs and do the right thing are like sus farts: never, ever trust ’em.
More like “dillhole whose company shat the bed.”
I haven’t seen a more “hello, fellow kids” move in my life than a bunch of WIDELY different aftermarket companies all rebranding as “Hoonigan.” “Hey, teens. Are we lit with the rizz? Please like us. Please.”
Yet another example of why the entire system that allows private equity to ruin companies and lives needs to be burnt down to the ground, nuked from orbit just to be sure, have every last flake of its ashes rounded up and put on a rocketship and fired into the sun.
I was wondering what happened to The Drive. They seem to be going the Jalopnik route of hot-link filled articles and every other article is just an ad for something.
🙁 It frequently crashes on mobile for me because of the ads, too, which makes me sad. It was getting affiliate-link-heavy even before I got laid off, though, which was frustrating in its own right. I understand the need to do some affiliate link posts to drive revenue, and the commerce team staff at both of those sites are good folks, but there’s got to be way more of the site you came to read than ads on the page.
(Let’s call commerce posts what they are here: ads. They’re fancy ads that crash your browser less and often have more personalized recommendations or even product reviews, but they’re still ads, given that the point is that you’ll hopefully click through and buy the widget so the site can get a kickback. I definitely prefer them to display and video ads, but again, there’s gotta be a healthy ratio of site content vs. any ads, in any form. But I digress.)
The folks who still work there deserve WAY better, either way.
I haven’t been to The Drive in a long time. Then I accidentally pressed on a link that took me there and I was shocked to see what the site turned into. The Drive is where I went after leaving Jalopnik. I’m here now and happy.
F*ck private equity. Predatory bastards. Rarely does anything good come of a PE acquisition. The principals, however, enrich themselves. Exhibit A: Mitt Romney.
Blood sucking leeches on the buttocks of society. Fuck ’em
Ken Block ain’t died for this.
Sadly I would normally choose to vote with my dollars to not buy products from those brands you mentioned, but I know there are genuine nice car people working for those companies. If I could directly stiff the PE firm I would. This late stage capitalism really sucks for anyone not filthy rich.
Colleges probably teach Finance classes on “How to Get Fucked in PE”…
That reminds me of that story of the scorpion and the frog crossing the river, the frog helped the scorpion cross because the latter promised not to sting the former. Then the scorpion stings the frog anyway.
PE are like the scorpion on this story, only that they wear a life jacket. I would say we should call them “Scorpion Funds” , but “Fuck You Funds” is far more appropriate.
It’s the sign of a deeply healthy economy that useless assholes can buy up companies, use accounting loopholes to saddle the company with debt, file for bankruptcy, and then buy themselves a fourth house/yacht. Very cool, very functional
The system doesn’t need repairs. It’s working as intended.
The system needs to be destroyed.
Can XD I wheels die please? Nothing says I don’t actually do truck stuff more than a set of these stupid rims.