Q&A with with Irwin Jacobs and John Paul Dejoria, J&D Acquisitions - Trade Only Today

Q&A with with Irwin Jacobs and John Paul Dejoria, J&D Acquisitions

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Anyone looking for proof that a lot can change in a year need only look at J&D Acquisitions' presence at this year's Miami International Boat Show and Yacht & Brokerage Show.

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Last February, the company - created by former Genmar chairman Irwin Jacobs and entrepreneur John Paul DeJoria - had just completed the purchase of six of the former Genmar brands and had limited exposure at the shows. This year, all six of its brands could be seen at one show or the other.

J&D Acquisitions owns the Larson, FinCraft, SeaSwirl, Triumph, Marquis and Carver brands. The latter two - Carver and Marquis - are built in Pulaski, Wis.; Larson, Seaswirl, Triumph and FinCraft are built in Little Falls, Minn.

Jacobs, 69, is chairman of Jacobs Management Corp. and J&D Acquisitions. He is also chairman of VEC Technology in Greenville, Pa., which has a proprietary, closed-mold process for molding composites. He has owned and/or controlled large, small and startup companies in a number of fields.

DeJoria, 66, is chairman and CEO of John Paul Mitchell Systems, a well-known manufacturer of hair-care products, and co-founder of Patrón Spirits Co., which imports and markets a portfolio of liqueurs and other spirits, including its signature Patrón tequila line.

Soundings Trade Only caught up with Jacobs and DeJoria Feb. 18 at the Marquis display at the Yacht & Brokerage Show.

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Q: I know it's still early in the show, but what's been the response so far? How are you feeling about the show?

JPD: I'm feeling very, very good. As you may know, we rebought the company within the last year and put 400 people back to work. What's unique, for example, if we take just Marquis Yachts, we have about 400 craftsmen that work with us, and some of our craftsmen are third generation. [With] a lot of other boat companies, if you want to have a custom-made boat, they outsource. They'll outsource the upholstery. They'll outsource everything else. At our factory, which is about 800,000 square feet for Marquis, we have everything inside. We don't go to outside vendors. We do the upholstery. We do the metal. Everything is done in our own factory. We'll compare [our craftsmen] to anyone in the world. Of course, our design is very Italian. We work with a group out of Italy that does our design.

Q: How are the other five lines doing?

JPD: The first thing we did [after buying the companies] was get people back to work. And we were rather surprised ... how quick all of our boat lines are coming around. Now they're not where they were a couple of years ago because the industry's gone down. But they're certainly on their way up, and one of the reasons, I think, has to do with [the fact that] it is American-made and the quality is second to none.

Q: What do you think people are looking for right now?

JPD: People want, first of all, luxury that's dependable and long-term - that's very, very important. They don't want something that's going to fall apart in a few years. If they make an investment in a yacht, they want one that they know through history has a beautiful design and is going to hold together for a long, long time.

But also we see a lot of people want to enter yachting but maybe don't have $4 million for our big ones. But for around $700,000 they can start with a 42-footer that's a yacht. In other words, it makes it very affordable. So you have the whole gamut from $700,000 to a little over $4 million, but it's high-quality and long-lasting, so it's affordable luxury.

Q: Last year at this time you had only just bought the Genmar lines out of bankruptcy. What's the last year been like?

JPD: It's a turnaround year - retooling and rehiring. Marquis Yachts have been made for 11 years, and we've already sold over 400 - from inception to right now. So for the last year it's been getting everybody back to work, getting all systems full, all inventories full and move forward. And we were rather surprised - about six months ago some of the bigger yachts were just starting to sell again. We thought, well, that's a good sign.

But we are global. We're in Monaco, we're of course here in the United States, and then China and some other places. Irwin and I put whatever money in that was necessary to get everything up to date, re- inventoried, get all of our workers back to work and start producing models - and improving them. We have new models coming out in all of our lines.

IJ: I believed in it or I never would have done it. I didn't put a timetable on it. I told him, "We aren't going to sit there and make money the first day we get into business." It's like starting a steel mill back up - you've got to bring your people back, your craftsmen. We've got the same people back that have been there for 20, 30 years.

Our designers - Nuvolari-Lenard in Venice, Italy -- are world-renowned. They've stayed with us through thick or thin. If I knew I had them on our side to do the design work, I knew we had it. It's just a case of let's do it the right way and be careful how we do it to make sure we build the same quality boats we've always built.

Just think about what this company's been able to do in 10 months. I've been in business 35 years. This is the proudest moment of my life. The fact is, people accepted us back after what took place, and we did hurt a lot of people - not on purpose. I can tell you both of us lost a lot of money. I lost $150 million of my own. But I'm not going to sit here and expect to make $150 million back off my new customer.

Q: How are you seeing international sales versus domestic?

JPD: We have orders that we've already filled from Monaco, from Russia and from China. So it's starting to happen internationally, as well as nationally.

IJ: It's not like any market is booming. We're picking up market share everywhere we're going, but it's a boat here, a boat there. It isn't like 10 here, 10 there.

Q: On a personal note, John Paul, what made you want to get into the boating business?

JPD: Through a mutual friend, I met Irwin, and I was really intrigued by some of the boats that were being made, and I saw this Marquis and I thought, Wow, what a boat. And, of course, some of the others, like the Triumph, which were indestructible and, I thought, the market's depressed now, but it's going to come back.

And then once I went to our factory in the northeastern part of Wisconsin - it was like, my God, this is a class act, and it's all Americans building American boats, with Italian designers. I knew that come 2011, 2012, 2013 the market is going to really start taking off. So I thought it was good timing - worth the millions that we put into it.

And plus, pride of ownership - that's another thing, too. To be proud of owning something like this is phenomenal.

IJ: Everything John Paul owns or is associated with has a level of acceptance to him. He wants to be the best at whatever that is. This man started with nothing and has built an empire.

Q: After the Genmar bankruptcy, there were some people in the industry, some vendors, suppliers, etc., who weren't happy with how things turned out; some were even bitter. What would you say to those people?

JPD: I would say to them, money was lost on Genmar. I lost money there, too. But we had enough faith in our workers and where this industry is going that we went ahead and invested millions, and I mean millions, more into this because we believed in its future.

So instead of putting X dollars into the stock market, I put it into this because I believe in what we do, I believe in our craftsmanship and I believe there's a future. So people shouldn't be bitter. People ... are going back to work, [and we're] putting all the vendors back to work again, which is kind of neat. So they should be happy.

I think, also, as our different boat lines become successful and our yacht lines become successful, the industry will come along with it, so we all benefit.

Q: What are people looking for these days in their boats? How important is it to have all the latest technology available?

JPD: Everybody would want as much as they could put on any boat, but it's what's affordable. Because we are custom-made, we can adjust to one's budget, whether it's a $10,000 boat you want to buy, a $30,000 boat - we have so many lines that we can adjust to the various budgets. We have it all under one big roof, so we use one company to benefit the other company also.

Q: Are you looking at purchasing any more boat lines?

JPD: One can never tell. You never can tell about the future.

IJ: I learned a lesson. I'm not going to make the same mistake I made [with Genmar]. I had lines that were competing with lines. And I had people on top of people that were competing. I had people in my own company bad-mouthing some of my other companies. I didn't know about this stuff until after the fact.

If the right situation comes along that fits the niche that we're in ... we'll look at it. But I'll tell you it will have to be more than compelling because we've got a lot of work to do yet. I know what we have on our drawing board right now and I know our distribution system's being rebuilt.

Q: Now that we're seeing the light at the end of the tunnel following the prolonged recession, what makes this industry one that will grow in the future?

JPD: People like boats. People like to be around things that are fun. What will make this industry grow in the future is it's outdoors. It's a way of life most people can associate with and, because we have so many different lines and so many price points, there's something for everybody, whether it's entry-level or not and as the economy is now coming back, people are getting more spendable cash. People feel they deserve affordable luxury.

Q: How has it been for the two of you to work together?

IJ: It's been phenomenal from my standpoint.

JPD: For me, too - great partner.

IJ: He's the best partner I've ever had, and I'll tell you why. John Paul came to me and he said "Irwin, I'll be the best partner you ever had." And why would he be the best partner? If you don't trust your partner and you don't have the chemistry for decisions ... if I call him, he says great idea, go for it, and you've got my support. Some people would say, send me a 10-page write-up. He's never been big on that kind of stuff. He doesn't like that.

JPD: And we both agree on high quality, affordable quality on everything we do, from Triumph all the way up.

IJ: It's a unique partnership because you don't see people spend the kind of money he and I are spending to retool. Look around this place and see what we've done here. It's unheard of in the industry.

Q: There are some economic indicators that are lagging behind others. How big an issue are these factors to the industry?

IJ: There's 18 percent unemployment. We're dealing with 82 percent - that's what we're looking at. I'd like to do business with those other 18 percent, but I know I can't. So there's still 82 percent of the world out there that's still got a job, paying their bills.

From our standpoint, we're not looking for the masses in Marquis and Carver. Where we're looking for the masses is in our entry-level product. We believe there's a bigger group of buyers out there for entry-level than are actually boating today. They have to be re-educated that boats are affordable and that they can get financing. Everybody can't get financing, but there are people who can.

And that's healthy, by the way, because the world got out of hand. There was much too much leverage, and the consumer out there overspent. The people today who are coming into the market, such as in boating, you don't get in for 10 percent down. I'm just closing a deal on a $3 million boat, and [the buyer] said to me, "Look, I want a cash deal. I've got no trades. I've got no nothing." There are people out there writing a check for $3 million. There's not hundreds or thousands [of those people], but we just want those people who are able.

Q: Do you think there are too many manufacturers?

IJ: Yes. Positively. My dad used to always say, "Pray in life for 10 good competitors versus one bad one. One bad one can hurt it for all 10." The theory behind this is we have too many people in this industry. But you get a bad boat out there, and it gives a bad name to the industry.

We need standards that are met. That's [one] of the things we're pushing for in our industry and in our association. We do have National Marine Manufacturers Association certification ... but it still needs to be tightened up. It's not where it needs to be.

We'll win the day - trust me, we will. Just look around and see. Every boat you see here will be sold by Saturday. The best thing we can hope for is I can have a year's production laid out, and then I can increase production and go out and look for more business. That's what we're trying to do.

Q: What do you think about the relaunched Discover Boating campaign?

IJ: Anything out there that promotes the outdoors and boating can't be bad. It's just a case of how good will it be. People have got cabin fever right now. They've been suppressed for a long time. There are a lot of people who had money who wouldn't go out and spend it during this downturn because they thought it was the wrong thing to do. They're ready to buy.

Q: Where do you see the industry five years from now?

IJ: The market two or three years ago was 320,000 boats a year. Last year it was 137,000 - so it was off two-thirds. I believe we will surpass that number over the next three, four, five years. There's no product out there. Relative to the consumers that are out there, the demand should exceed what's available.

We have no inventories in the field. There's no repos out there. None of that stuff is around anymore. The people that were stealing the stuff at half-price - that party's over.

JPD: Those that lasted, lasted with quality, and people know that. And so as the industry comes back, and I think it is right now starting to come back, those with quality are the ones people are going to gravitate toward. Those that didn't have the quality may not be in business.

IJ: I believe when you see the consumer's trends this next year, two years, they're going to demand newer, better ... and to do that you need money. I pushed the button. I went to John Paul and I said, "John Paul, we're going to retool like no one in the world has ever done." We've done in nine months what's never been done in two, three years in a company. If you look around and you see what's on this dock here right now, this is Star Wars in the industry right now. It's brand-new stuff. Unheard of.

When you take our Larson line - we've got 13 new models in Larson, three new cruisers. It's usually a cruiser a year is what you put out. We put out three of them in one year. We signed up 104 new dealers in 10 months. There are people that don't have 104 dealers.

JPD: When you look at your industry having collectively fewer distributors, that's true in other industries, too. In the professional beauty industry, we have half the distributors we had 15 years ago. In the alcohol business, the industry now has less distributors than they had 10 years ago. So I think more industries are consolidating their distribution, and the strong ones survive. I'm sure that there were some really good ones that were small that somehow didn't survive, but many industries are like that. Fewer moving parts.

I think it's all about quality. People don't mind spending a couple extra dollars for quality or sticking by quality.

IJ: That doesn't mean the highest price when you talk about quality. What that means is it's a work ethic of what you believe your product has to be in order to be accepted. You can't be all things to all people, but we're trying to be more things to more people.

This article originally appeared in the April 2011 issue.

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