With a slow-sales year behind and another one likely ahead, the boating industry may not be feeling particularly attractive.
But that’s not how everyone sees it. The industry’s fragmented nature, baby boomer demographics, the increasing professionalism of its dealers and its efforts to improve through the Grow Boating Campaign are a turn on for many private equity firms, according to Rob Crisp, a vice president at Crowe Capital Markets LLC, a boutique investment bank specializing in family and closely-held businesses.
Some boat companies find private equity firms pretty desirable, too. For one, they have money in their wallets. When the numbers are totaled up, private equity firms are expected to have raised more than $300 billion worldwide last year — a signifgant increase from 2005, Crisp says. In fact, the private equity movement is one of the major drivers behind the current wave of megadeals rippling through the business world, according to financial experts according to financial experts.
“The important thing to remember is that they’re looking for positive cash flow and some history of growth,” points out Sandy Spaulding, managing partner of Sea Glass Capital, a management consulting and financial advisory services firm specializing in the marine industry. “If you don’t have either of those, it’s tough.”
On the surface, Crowe and Sea Glass are like matchmakers, bringing together buyers and sellers with similar needs, wants and outlooks. But the companies do much more for their clients, from analyzing their businesses to evaluating purchase proposals and assisting in negotiations and transactions. Those firms most likely to score a successful match are well-run boating businesses — both those with owners who want to retire but don’t have a clear succession plan, and those who see the need for the company to grow and improve but don’t have the resources to fund it.
Alternately, if the company is struggling under current market conditions, a private equity firm may serve as a survival mechanism, providing a future for the brand and employees.
“My recommendation across the board: you’re better off getting some professional advice about both how to make your company more profitable and make it look more profitable,” says Spaulding. “I think you’re better off engaging a firm like us a year or two years in advance so we can help position your income statement. When it’s all put together, the package for sale is a lot more attractive, and you’ll achieve a higher valuation.”
In addition to cash, private equity firms often can offer experience, resources and talent to help bring a company to the next level. During a time when customers’ expectations are rising, the threat from other recreations is growing and much of the industry is embracing a higher level of professionalism, continuous improvement is essential for boat companies to remain competitive.
“We think it’s a very good business for us to be in at the moment,” Crisp says.
For the past few years Crowe has been getting an inquiry at least once or twice a month from firms wishing to buy or sell within the marine industry. Sea Glass has also been fielding its share of calls — especially from the marina and boatyard segment, which Spaulding says is slightly healthier than the boat builder segment right now. In addition, he also sees a lot of opportunity for small marine industry vendors looking to consolidate.
A new Rinker and Godfrey?
The families that owned Rinker and Godfrey Marine — both of which retained Crowe — apparently saw the benefits of the private equity.
Rinker Boat Co. was sold in July 2004 to the Code Henessy & Simmons LLC, the same private equity firm that purchased an interest in Godfrey Marine in late 2005.
When Rinker was acquired, CHS placed one of its own executives, Bob Moran, at the company’s helm as CEO, and when Godfrey and Rinker merged, Moran became CEO of the combined entity Godfrey Marine Group, the fourth largest U.S. pleasure boat builder.
“This is a perfect strategic alliance of product, value and distribution, not to mention the relative proximity of the manufacturing sites,” he says.
Moran has led the integration of the two companies, hiring a consulting group to bring the two cultures together as they moved from family-run businesses to a team-based approach. And he is now guiding the company in taking advantage of its biggest opportunity: integrating its dealer networks.
He isn’t in a rush, however. Moran realizes the company’s dealer relationships are critical to its success, so he says it’s moving slowly and cautiously.
“Godfrey has around 400 dealers and Rinker, a little bit north of 100,” said Moran in a July interview. “Today, there are only a dozen or so overlapping dealers.” As of December, Godfrey had 28 dealers selling both brands.
Among the other future initiatives Moran plans are an Internet-based order processing and tracking system for dealers, product development and enhancement, quality improvement initiatives and an increase in the responsiveness of both warranty and parts.
In the meantime, the group has leveraged its size to get better deals from suppliers, and the two teams have shared best practices, which the company says its product lines.
“Success starts with a well-conceived strategic concept, a long-term vision for the business, and a very well-thought-out integration strategy,” Crisp explains. “Where [mergers and acquisitions] potentially fail is where there is a lack of strategy, a lack of a cultural fit, or an inability to integrate the two companies’.”
Moran admits to the possibility of more acquisitions ahead, and he isn’t alone. Crowe has at least one marine industry match-up brewing, Sea Glass says it’s working on a number of opportunities — including sourcing a private equity firm for a $50-million boat company — and there are countless others likely going it alone. M&A experts predict the spate of megadeals isn’t likely to end anytime soon.
“These funds have to invest,” sums up Spaulding. “The whole leisure section is hot, the luxury end of it, in particular. And [boating] is a sexy industry.”
Reasons to consider an advisor
1. Serves as an intermediary in negotiations
n Insulates the owners and management from the need to make immediate decisions.
n Ability to act as the “bad cop” and not sour the buyer on the transaction or the owners and management team.
n Provides the owner the ability to maintain an appropriate distance from the sales process.
2. Leverages industry and M&A experience
n Prepares a company for the transaction process and can provide suggestions on how to enhance value in the eyes of bidders.
n Utilizes industry contacts and pre-existing relationships to target buyers most likely to meet shareholder objectives.
n Understands the implications of different deal terms and how to guard clients against disadvantageous conditions.
3. Allows the management team to concentrate on the day-to-day issues of running the business
n Avoid neglecting customers, vendors and employees.
n It is critical that the business continues to perform well during the transaction process.
4. Heightens the sophistication level of the transaction and maximizes potential value
n Investors assume they can acquire stakes in companies that lack representation at bargain prices.
n Representation translates directly into more advantageous transaction terms.
5. Establishes a sense of urgency and an
n Without a sense of urgency, deals tend to be delayed, thereby creating an opportunity for the investor’s interest to wane.
n Advisors create a specific timeline of events, and adhere to it, so that all parties are placed on an equal footing.
n Avoids the dilemma of talking to one potential investor first, before marketing the company to all potential investors.
n An organized process creates an auction environment and bidding pressure while deal leverage is the highest.
6. Helps to ensure confidentiality of transaction
n Decreases likelihood of employees questioning activities of management.
n Funnels potential buyer contact through an outside party and an outside office.