The North Carolina boatbuilder was acquired by its largest dealer, American Global Yacht Group
When the credit markets seized up last November, it sent shockwaves through the boating industry. Capital for dealers dried up, making it difficult, if not impossible, to borrow money to purchase new boats for the sales floor. This, in turn, caused a dramatic drop in production at factories building new boats. Consumers were hit hard, too.
This isn't news to boatbuilders and dealers. And it certainly isn't to Frank Longino, one of the founders of Southport Boat Works, which builds 26- and 28-foot center console and express fishing boats in a 52,000-square-foot plant in Leland, N.C. Facing the sobering financial climate with pragmatism, he laid off half of his work force, reducing it from 40 employees to 20.
"Our dealers were able to sell boats, but they weren't able to restock," Longino says. "The crunch came on the wholesale side, where our dealers didn't have access to the capital markets. This essentially froze our sales."
The problem was challenging, as it continues to be for many dealers and builders. Longino, however, was mindful of a potential solution, but it would mean making some big changes at Southport Boat Works.
Southport is a relatively new company. Founded in 2004 to produce high-end fishing boats designed specifically to accommodate 4-stroke outboards, its first unit was sold in October of that year. From 2005 to 2008, it sold 400 boats through its dealer network, Longino says. Sales started to flag in 2008, dropping to 65 units. And, of that total, 23 sales were from Grasonville, Md.-based American Global Yacht Group, a boatbuilder and dealer that markets a line of brands in the United States, Canada, the United Kingdom and Australia.
AGYG was Southport's biggest dealer, accounting for 25 percent of total unit sales in the years leading up to the credit crisis in the fall of 2008, according to Longino. After the crash, AGYG was still buying Southport boats. "They had access to capital markets that the smaller dealers didn't have," he says. "They were buying and selling boats when [almost] no one else was."
A 'different ballgame'
Longino, 56, has been a key player in the boating industry since 1987, when he went to work for Grady-White Boats to head up marketing and product development. He also did a stint at Chris-Craft before founding Southport Boat Works with his partners. He's been through industry slumps before, but he believes this one is different.
"In previous downturns, we had the baby boom generation to buffer it. Now we don't," he says. Add to that crimped capital markets for the foreseeable future, and the prognosis for growth in the boating industry looks gloomy for many of the smaller companies, Longino says.
"It's going to be a different ballgame," he says. "We don't know what that playing field is going to look like, but we do know it will be changed because of the future constraints in the capital markets. There will be a lot less capital available at the wholesale level for dealers and manufacturers. This will lead to there being fewer manufacturing companies and fewer dealers. Structurally, we're going to see some real differences coming out of this downturn," Longino says.
Fully aware of AGYG's financial strength and with an established relationship with its principals, Longino approached the company "to see if they'd be interested in purchasing Southport Boat Works."
AGYG was. The merger and acquisition went through in late May, and Southport Boat Works is now a subsidiary of AGYG, with Longino serving as Southport's vice president.
AGYG was founded in 2004, the same year as Southport Boat Works. To some observers it might seem to be a hybrid. It's not exclusively a boatbuilder, though it does build and market such boats as Outer Reef Yachts, Molokai Strait Yachts and Newport Yachts. It is also a dealer for Hunt Yachts, Formula Boats, Apreamare, Pegiva Boats, and Rivolta Yachts. It will continue to build and sell Southport boats.
AGYG's total sales revenue increased by approximately 48 percent between 2007 and 2008. The strong performance is in part because of the aggressive business approach of the company principals, who aren't afraid to pursue opportunities that will complement their plans for sustained growth. In the last two years, AGYG acquired Southport and Newport Yachts, and added Hunt and Pegiva to its dealership lines. Jerry Cureton, 60, a principal of AGYG, says the acquisition of Southport Boat Works will boost overall revenue "somewhat," but total sales for 2009 are expected to remain at around $25 million.
The growth of the company has led to opening additional offices and a doubling of its work force and affiliated yacht brokers from 25 to 50 in 2009. In the United States, the company operates sales and service operations in Maryland, Florida and Washington State. Another office is slated to open on Long Island in the fall or in early winter. "We've been growing exponentially every year," Cureton says.
One of AGYG's key positioning points in the market is to focus solely on high-end products and to concentrate on refining and improving customer service and product quality. The Southport acquisition fit the firm's business model and gave it a U.S. plant. Its other yachts are built in Taiwan and Turkey.
In addition, the Southport plant opens new opportunities and economies of scale that Cureton says will lower overhead, reduce retail prices, and enhance product quality. "We will have excess capacity at that plant beyond Southport," Cureton says. "We can put other boat lines in the factory, and we're planning to do that." Cureton also says AGYG is actively developing a new 34-footer to add to the Southport line.
Like Longino, Cureton believes the current downturn in the boating industry, which he calls a euphemism for something much worse, is radically altering traditional forms of doing business between dealers and boatbuilders. If dealers can't obtain capital to buy new boats from manufacturers, then AGYG's solution is to do it all under a single umbrella.
"What we will be doing and others may be doing is changing our distribution systems, where AGYG offices will be selling most of the boats rather than relying on a dealer network that has been shut down due to a credit crunch," Cureton says.
While there may be fewer dealers and builders in the coming years, Cureton remains optimistic about the industry overall. "We've based our business plan on the premise that the economy is going to turn around and, when it does, we'll own the best products in the market and at an acquisition price that was favorable to us. You have to be optimistic to buy boat manufacturing companies these days, and we are."
This article originally appeared in the August 2009 issue.