Boating Industry: As you assessed the current state of the marine industry in an effort to determine areas of opportunity, what conclusions did you reach?
Bill Yeargin: Liz, I am going to dance around this question a little bit since we made a very significant investment to come to our conclusions. However, I will say that we believe that there are and will continue to be opportunities in our industry for well run companies to be profitable, even at significantly lower volumes. We also believe that there are some good companies that are going to need capital and strategic partners. We have capital to offer but we also have much more than just capital for the right companies that are looking for someone to help them reach their potential.
Boating Industry: To what extent are our current challenges the result of economic conditions vs. internal factors? How do both current economic conditions and our industry’s internal challenges impact the opportunities available? Please explain.
Bill Yeargin: Great question, Liz. I think all of us have a tendency to want to blame external factors for our problems. I know I do. But I heard someone say once that a definition of failure is not accurately foreseeing and preparing for the future, and I think it is safe to say that very few, if any, of us foresaw what we are now experiencing.
I understand hindsight is 20/20, and I am not claiming I foresaw the current environment (because I didn’t), but the reality is there were lots of signs; I believe we all should have done a better job extrapolating to our current situation and been better prepared. For instance, boat sales have dropped every year since 2000 (except for one), yet the industry continued pumping the field full of inventory. We didn’t pay enough attention to the correlation between home prices and people buying boats with second mortgages. There are other examples.
There is a phrase that has been attributed to Warren Buffet that says, “You don’t know who is swimming naked until the tide goes out.” I think we found out a lot of people were swimming naked, both in our industry and others.
Now, the good news is that smart companies have totally reworked their business model; I know we have at Correct Craft. Smart companies have used this time to significantly drive down their break-even points and will weather the storm. They have been forced to fix problems that should have been fixed years ago but didn’t get attention since companies were doing well and making money. When the storm is over, these smart companies will benefit for years from what they have done during this storm.
The funny thing is that I was talking about this recently with one of my peers, and we were wondering how long it will take people to forget what we have been through and start slipping back to their old ways. I, for one, don’t plan to forget.
These internal problems will impact the opportunities, and companies that have been slower to act may be the first ones looking for a lifeline. In the long run, a company is only as good as its ability to attract, develop, and retain talented people. Those with the talented people have made the tough decisions when they needed to, and that has a significant impact on how we view each potential investment.
Boating Industry: Did you find any surprises in the data you collected?
Bill Yeargin: I was surprised that so few in our industry expect a turnaround next year. I expected more people to think we would see a bigger improvement starting with next spring’s selling season.
I was also surprised that many in our industry believe that the biggest opportunity is related to picking up market share after other companies fail. Clearly, there is an expectation of fall-out in our industry over the next year.
Boating Industry: You mentioned breaking the marine industry into segments. How many segments, how did you develop them and what were they?
Bill Yeargin: We broke the industry into 15 segments. I would rather not identify them, but it wouldn’t be too hard for someone to re-create them. We actually started with about 20 segments but some segments seemed too narrow, so we combined a few to get to the 15.
Boating Industry: You said earlier that you performed a “Z Analysis” on the 15 segments. Can you explain what such an analysis entails?
Bill Yeargin: The “Z Analysis” is a tool we use that combines ideas from both the Myers-Briggs Type Indicator process and Edward DeBono’s book, “Six Thinking Hats.” Basically, it is a tool that provides a process to gather information about a segment and then look at positives, negatives, possible synergies and intuition, or gut feel, about that segment. This process really helped us review and understand each of the 15 identified segments.
Boating Industry: You narrowed the 15 segments down into three with a Pugh Matrix Analysis. Can you tell us about that process?
Bill Yeargin: The Pugh Matrix Analysis is a systematic approach to prioritizing a set of alternatives based on a number of different factors and weightings. Basically, we identified key factors that impacted whether or not we wanted to invest in any particular segment and weighted them based on importance. We then applied the factors and weighting to each segment to identify the three segments we believe have the best potential. It might sound confusing, but it works well.
Boating Industry: Tell us about the three segments you decided to focus on and why they represent areas of opportunity for investment.
Bill Yeargin: At this time, I would rather not identify three segments we selected. We spent a lot of time and money working on this, so I would like to keep it to ourselves for a while!
Boating Industry: Would you consider investment outside of these three?
Bill Yeargin: Absolutely. While our Pugh Matrix Analysis helped us prioritize, it does not rule out other segments. The process just helped us prioritize where we want to spend our time looking for opportunities.
Boating Industry: What are you doing now with the information you gathered?
Bill Yeargin: We are looking at numerous opportunities and trying to identify those we want to pursue. While we would like to do some deals, we don’t feel any pressure. If the right opportunity comes along, we will do the deal. If not, we have plenty of other things on which to focus.
Boating Industry: Are you looking to invest now or at some point down the road? Who will be investing? Correct Craft? The private equity firm? How will those investments potentially impact Correct Craft?
Bill Yeargin: We are looking now, but as I mentioned in the previous question, we are patient.
The investments will be a combination of Ambassador and Correct Craft. Ambassador brings a lot to the table with not only their financial resources but also their very talented team. Correct Craft is already in the marine industry, and we also have a very talented team who will be instrumental in integration of any acquisition. The final structure of the deal would depend on the deal.
Regarding the impact on Correct Craft, we obviously would not do a deal that would hurt Correct Craft. While we believe there are lots of companies in our industry that would have synergies with Correct Craft, doing a deal is not contingent on that. However, we will also work hard to take advantage of the synergies that come with any acquisition.