Correct Craft shares industry investment insights

When Correct Craft first announced in July that it – in collaboration with private equity firm and owner Ambassador Enterprises – was assembling a team to explore marine industry investment opportunities, it piqued the industry’s interest. Given the boating business’ less-than-rosy mid-term outlook, the seasonality of the marine sector and many boating firms’ diversification into other markets, the move took many insiders by surprise. Now, the team selected to conduct the research – including Correct Craft President and CEO Bill Yeargin; Correct Craft CFO Sean Marrero; Russell Baqir, the former president of Textron Marine Finance; and Chuck West, who was CEO of Mastercraft for 10 years – has produced a 250-page Marine Industry Investment Analysis.
In an effort to learn more about the project, Boating Industry magazine conducted an in-depth interview with Yeargin, asking him to explain why the company has launched the project this year, how its mission has been carried out, what data has been generated and how that information will be used.
Stay tuned for the second and final part in this series, which will be shared with Boating Industry e-news recipients next Wednesday.
Boating Industry: Can you tell us why Correct Craft is interested in looking into opportunities for marine industry investment? What factors came into play in deciding now is the right time to consider this? Some might call it counterintuitive, given the market conditions.
Bill Yeargin: Funny, Liz, that you chose to use the word “counterintuitive.” Is that your polite way of saying “Are you crazy?” If that is what you are asking, you would not be the first. We have had a lot of people ask us “why now” during what appears to be the worst boating market ever. Let me try to give you some background.
At Correct Craft, we are very blessed to be supported by a first class investment company, Ambassador Enterprises. I have a great relationship with the owner of Ambassador. He has a lot of confidence in our Correct Craft team.
Ambassador is in a strong liquidity position and is looking to invest in either the boating or other industries. Based on my relationship with the owner of Ambassador, I was asked to put together a team of people to review the marine industry, the environment in which it operates and determine whether the marine industry is a good place to invest. Assuming this team determined the marine industry is a good place to invest, I and our team would then pursue potential deals.
To get back to your question, we do believe that there are opportunities in our industry now. We don’t feel any pressure to invest and may not invest further in our industry, but many times, chaos provides the best opportunities. While we obviously don’t want to overpay in a bad market, we are not bottom fishers. We are looking for strategic opportunities with organizations that have good brands, good processes and good teams.
We don’t know for sure that the timing is right and if it isn’t we won’t do anything. However, we are prepared to act quickly regarding the right opportunities.
Boating Industry: How did you decide on the team of people to head up this project?
Bill Yeargin: I wanted a team of people who were seasoned industry veterans but also a team of people who would see things from different perspectives. Many people in our industry have heard me speak about the “beach ball” perspective. Basically, the “beach ball” perspective is making sure you see every color of the situation, not just the color you happen to be on. The team of me, Sean, Russell and Chuck accomplished that. We all brought different experiences to the table, and the synergies were incredible. Not only that, but we had a blast. The team chemistry was awesome, which always helps on any project.
Boating Industry: Can you share with us how you formed a plan to meet this project’s objectives and what that plan looked like?
Bill Yeargin: Sure. We really started with a broad approach and worked our way toward specific more specific analysis … much like a funnel. We analyzed the situation with the overall global economy, moved into the industry, and then down to fifteen separate industry segments. Along the way, we layered data sets on top of each other to identify patterns and trends. In addition to the background research, we came up with the collective “Voice of the Industry” by interviewing nearly 60 key players in the industry. After we completed this analysis, we were able to rank each segment based on a number of factors, including the likelihood that it would generate an acceptable return. While we agreed we would not categorically exclude the other segments, we did want to narrow our focus to make the best use of our resources.
Boating Industry: How did you specifically go about reviewing the marine industry?
Bill Yeargin: There were three different parts to our review of the marine industry. First, we dug up any kind of research we could find done by a number of marine industry organizations. We were pleasantly surprised by the amount of information available through the NMMA and other groups.
Secondly, we interviewed nearly 60 marine industry leaders. We wanted to gather what we called the “Voice of the Industry.” We really appreciated these leaders spending time with us and found many common threads of valuable information after we put all of the interviews together.
Finally, we broke the industry into 15 segments and did a “Z Analysis” on each of them and then ultimately conducted a Pugh Matrix Analysis to narrow them down to the three most desirable segments.
The amount of information we gathered in this process was incredible. Our team is made up of industry veterans, but we all felt like we learned a lot through this process.
Boating Industry: Part of your process involved interviewing industry executives. What can you tell us about that process?
Bill Yeargin: The purpose of interviewing the executives was to develop a “Voice of the Industry.” As everyone does, we hear all kinds of different perspectives, but we wanted to get beyond the “noise.” To do this, we collected a broad range of opinions from industry leaders in many industry segments to see what we could learn through identifying common threads of information. It was a very interesting process.
Boating Industry: Who were the executives interviewed?
Bill Yeargin: I cannot specifically identify the executives, but I can tell you it was many of the leaders in our industry. I suspect you would know almost all of the names.
Boating Industry: What were the questions you asked?
Bill Yeargin: Out of respect for the time of the executives, we limited our interview to eight questions as follows:
1) In light of the current economy, when do you believe the boating industry will turn around?
2) In addition to general economic factors, what do you think are the most critical problems currently facing the marine industry?
3) What do you see as the industry’s biggest opportunities both current and future?
4) Which segments of the industry do you identify as opportunities?
5) Which segments of the industry would you avoid?
6) Do you know any companies who are doing well?
7) Do you know anyone else looking to invest in the marine industry? Have you heard of recent mergers or acquisitions?
8) If you were ready to invest money somewhere, would you invest in the marine industry?
We also gave the execs a chance to make other comments if they chose to do so and many of them did.
Boating Industry: You asked when the executives think things will turn around for the industry. What answers did they give?
Bill Yeargin: I can tell you that very few people are expecting an imminent turnaround. Hardly anyone thinks the industry will be where it was a couple years ago for a very long time, if ever. There were some that were hopeful that calendar year 2010 will be okay, but I would say the consensus is that we will not see things improve until at least calendar year 2011 or 2012.
Boating Industry: You asked the executives what they thought the biggest problems facing the industry were. What can you share with us related to their answers?
Bill Yeargin: This will be no surprise: the biggest issue related to financing. Most people were referring to wholesale financing, but many also mentioned issues with retail financing. Some others that came up often included the potential for rising fuel prices, water access, and high field inventories. The really big item that concerns a lot of people relates to a suspected change in consumer spending paradigms away from a spending mentality to a saving mentality.
Boating Industry: What did the executives think were the biggest opportunities in the current environment?
Bill Yeargin: There were a lot of opportunities mentioned, but financing was certainly near the top. Other opportunities included the probability that the industry will be thinning out with less competition. This will allow companies that survive to operate in a possibly much smaller market.
Boating Industry: What companies did the executives think were doing well?
Bill Yeargin: To be honest, we got very few answers to this question. There seems to be general agreement that the industry as a whole is really struggling. That is not to say that some companies have not adapted to the current environment. We did not identify any specific patterns from the answers to this question.
Boating Industry: Which segments did the executives think should be avoided? Where should we expect to see consolidation?
Bill Yeargin: The answers here were also quite varied. At this point, everyone in our industry is working in a segment that is struggling, and many people may not enter the business they are in today. It does seem reasonable to assume that some consolidation will happen through the combination of excess capacity to be able to sustain and be profitable at lower volume.
Boating Industry: As part of the interview process, did the executives mention others looking to invest in the industry, either from inside or outside the business?
Bill Yeargin: Very few people mentioned anyone other than Nautic Global’s attempt to buy Crownline, which was going on and highly publicized at the time we did the interviews.
Boating Industry: The last specific question you asked was whether the executives would invest themselves in the industry at this time. Can you tell us how they responded?
Bill Yeargin: Actually, I was a little surprised at how bearish the interviewees as a whole were. Most said they would not invest in our industry at this time. That could be partly a result of the fact that most of them are now operating in the industry under very difficult circumstances and cannot imagine getting deeper into it.
Boating Industry: Were there other comments that came up as part of your “Voice of the Industry” study?
Bill Yeargin: There were many other comments. I think overall the industry has been in a bit of a fog. Visibility is very low and we are all navigating in largely unchartered waters. Most people seem to be trying hard to adjust their business model to the new reality. One person said that they stopped using the phrase “worst case scenario” because every time they said that, things actually got worse than they thought they could.