Playing Pac-Man

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Michael Verdon

Michael Verdon

The boating industry, like the rest of the business world, has been playing what seems like an accelerating game of Pac-Man over the last three years. Merger-and-acquisition activities reached record levels in 2016 and kept climbing across the corporate world.

In boating, M&A activity has really heated up in the last nine months, with some of the largest acquisitions our industry has ever seen. Brunswick’s purchase of Power Products Marine for $910 million in July could be one for the record books, and BRP’s buyout of Alumacraft, while undisclosed, may have been close to $100 million.

Polaris’ acquisition of Boat Holdings in an all-cash deal of $805 million or Dometic’s purchase of SeaStar for $875 million are equally impressive. Selling prices are now above typical market values, with multiples of 10X and even 12X EBITDA in some cases. In scale and frequency, this summer’s acquisitions have surpassed such records as the 1984 buyout of Sea Ray by Brunswick for $350 million ($803 million in today’s dollars), and OMC’s 2000 bankruptcy auction assets to Bombardier for $53.8 million ($78.6 million today) and Genmar for $41.2 million ($60.9 million).

Activity doesn’t seem to be slowing down. A 2018 Deloitte report, which polled more than 1,000 executives, forecasts that M&A will accelerate through the end of 2018. Some of the takeaways: Fewer corporations are looking outside the United States to acquire companies, and about 65 percent of the companies are reporting stronger cash reserves that can be used for acquisitions. Forty percent of the respondents (private equity and corporations) say acquisitions will be the No. 1 use for cash reserves, as opposed to only 15 percent that planned to use them for stock buybacks.

It’s one thing to acquire a company but yet another to successfully integrate it into the fold. The boating industry has seen failures, including Bombardier’s acquisition of Celebrity Boats and, arguably, the decision by Brunswick Corp. to do away with the Sea Pro and Sea Boss brands as the saltwater fishboat market was preparing to explode.

On balance, most of the acquisitions seem to have been successes: Witness Mercury’s P&A sales now, compared to 2000 when it had minimal aftermarket presence before buying Land ‘N’ Sea, Donovan Marine and an ever-growing list of distributors. Brunswick’s purchase of the aluminum boat brands also turned out to be fortuitous for its boatbuilding empire as the boating landscape changed after the recession.

Most of the acquisitions seem to make long-term sense. Rather than acquiring just for growth, the new subsidiaries serve strategic purposes, such as Taylor Made giving Lippert a far bigger presence in boating, or BRP launching a marine division by pairing Alumacraft with Evinrude.

The acquisitions also involve “gaining a larger footprint on the boat, with more control over integration,” Leif Ottosson, CEO of Navico, told me shortly after the announcement that his company had merged with C-MAP. He pointed not only to his deal, but also to Brunswick’s buyout of Power Products and Dometic’s acquisition of SeaStar.

Correct Craft CEO Bill Yeargin, one of the early trendsetters with marine acquisitions, says there is a “gold rush” mentality in the industry now, with companies feeling that they must do M&A to compete. That puts upward pressure on pricing, with sellers asking and often receiving higher prices. The strong stock market, with price-earnings ratios well above historic levels, has provided cheaper capital for publicly traded companies to pay higher prices.

“We’ve walked away from many current deals because the sellers see the high multiples being paid and want top dollar,” says Yeargin. “We’re still very much in the market but want to create long-term value, and it’s very hard to do that if you overpay.”

So where will we end up? Only about 10 percent of the respondents in the Deloitte study say their deals fell short of expectations after two years, down from 40 percent in 2016. That sense of optimism also seems palpable across the boating industry as it realigns.

Yeargin believes M&A activity will continue, though the tariffs and talk of an economic downturn next year could put a damper on the roaring fire. “M&A is still an important part of our growth strategy, but we also need to be patient and do deals that are good for both buyer and seller,” he says.

In other words, a smarter game of Pac-Man.

This article originally appeared in the August 2018 issue.

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