A healthy shot of consolidation

Uptick in mergers and acquisitions may be the precursor of a larger trend, which analysts view as positive
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Marina Photo

Show Management, longtime producer of the Fort Lauderdale International Boat Show, was acquired earlier this year

The marine industry is seeing mergers and acquisitions at an increasing pace across the board, due in part to aging owners seeking succession strategies and partly because many companies have become profitable in the seven years following the Great Recession after years of losses or sluggish growth.

The acquisitions have occurred across the spectrum, taking place aggressively on the marina side, with increasing activity also occurring among boat dealerships, parts and accessories manufacturers, engine builders and boatbuilders themselves.

Some industry stakeholders and analysts think the industry is in an early phase of consolidation, and although it might not lead to fewer boatbuilders, they say it’s a sign of a healthy industry.

“It tells me that business is good,” says Thom Dammrich, president of the National Marine Manufacturers Association. “If you look at the next five to 10 years, there are going to be a lot of industry leaders that are going to need a succession strategy. As you see more consolidation among dealers and manufacturers, I think you’ll continue to see that trend. There may not be fewer boat brands, but I think there will be fewer boat companies controlling bigger and bigger shares of the market with multiple brands.”

Correct Craft CEO Bryant Yeargin with John Dorton

Correct Craft CEO Bill Yeargin (right) welcomes Bryant Boats founder John Dorton into the Correct Craft family.

Some of the noteworthy acquisitions on the boatbuilding side include Brunswick Corp.’s purchase last summer (for its Bayliner brand) of Heyday Inboards, a wakesurfing boat brand geared toward millennials; Correct Craft’s purchase of sterndrive runabout builder Bryant Boats; Iconic Marine Group’s purchase of Baja Marine — which also included Donzi, Donzi Classic, Fountain Powerboats and Pro-Line (Pro-Line was subsequently sold); and Malibu’s recent purchase of Cobalt Boats.

“The commonality is, the better operators — especially on the boat side — are profitable now,” says Michael Swartz, a vice president of equity research specializing in the recreational and leisure sectors at SunTrust Robinson Humphrey. “It’s hard to buy a company that’s not profitable that’s part of a highly cyclical industry.”

Malibu’s purchase of Cobalt Boats for $130 million in early July seemingly was motivated by growth potential for two successful companies. “I can’t really speak for the others; there might be some that just are wanting to get out of the business,” says former Cobalt owner and current president Paxson St. Clair. “For us, this was a different approach. We clearly went in with the mindset that one plus one equals three. There’s a clear opportunity for us to achieve that with this strategic partnership. It was growth-motivated for us in a way that we could continue our success and market gains going forward.”

Business owners who don’t have offspring interested in the family business are looking for exit strategies, says Swartz. “Some of the kids in their 20s and 30s have no interest in this industry” he says. “Or they see how hard the business was just being around their parents for decades.

“The business is a hustle, and very few people are getting rich doing it,” Swartz says. “If someone says, ‘Here are a few million dollars for your company,’ it sounds pretty nice. Especially because those people, as we all do, have a very recent memory of the recession. They don’t want to go through that again, especially if they’re at a certain age.”

Distribution squeeze

Boating, with about 1,100 builders, has definitely remained more fragmented than most industries. Brands that had been discontinued, sold or had gone bankrupt during the recession were sort of like zombies — for example, several Genmar brands were thought to have disappeared after bankruptcy until former owner Irwin Jacobs formed another company to buy back brands such as Carver and Marquis.

Several other former Genmar brands were bought by the private equity firm Platinum Equity Group, bundled into a fishing group and a recreational group and subsequently sold to Bass Pro Shops and Beneteau Group, respectively.

That’s in part because of the low barrier to entry, requiring molds (Trade Only’s website had some listed for sale as this article was written), some basic tools, a building and workers.

"There's a lot of money on the sidelines waiting to be put into the game, and values are high right now because most businesses are doing well." — Bryant Boat's John Dorton

It also is because the recreational boat business is “a hobbyist industry,” Swartz says. “There’s a big hobbyist element, and the majority are not mass-produced. If you want to go find a company and start building boats tomorrow, it’s pretty easy. But it doesn’t mean it’s going to be profitable.”

After the recession, anywhere from 35 to 50 percent of boat dealerships disappeared. The continued dealer consolidation, on top of the rapid attrition of those businesses post-recession, will further squeeze distribution for builders, which could mean that some will be shaken out of the process.

“What’s become a barrier to entry in boating today is distribution,” Dammrich says. “We have fewer dealers than we did prior to the recession, so getting distribution for a new brand is more difficult than in the past. That has become a bit of a barrier to entry.”

Additional consolidation of dealerships will continue to press distribution, Dammrich says, which could further advance the acquisition trend.

Cobalt 25C17 Boat photo

Cobalt's venture into outboard boats was one of the factors in Malibu's decision to buy the Kansas-based company in a $130 million deal.

Mutual benefits

That increased competition over distribution points is one reason mergers and acquisitions make sense in today’s environment, says John Dorton, who recently sold Bryant Boats to Correct Craft.

“Bryant is a small business and Correct Craft has such a big network of other manufacturers, a dealer base among different builders, and also has greater buyer power,” Dorton says. “It made sense for Bryant to be a part of that. Correct Craft didn’t have anything in the sterndrive space, so we rounded out their portfolio. The sterndrive movement is very real and getting some traction, so that made sense for them.”

The acquisition also gives Bryant more buying power as part of the larger manufacturers buying group, and philosophically, their missions aligned, Dorton says. “And Correct Craft, for an extremely good value, bought into an emerging sterndrive brand for the purpose of growing it.”

“What Bryant needed was capital,” says Swartz. “Correct Craft put some money into product development, new molding and hull design, and is going to offer outboard-powered product, which will help them gain some traction.” 

When Malibu Boats bought Cobalt Boats in early July, there was an opportunity to strengthen the dealer networks, although both brands enjoy robust distribution.

Malibu CEO Jack Springer stressed at the time of the sale that there won’t be “a lot of trading back and forth” among dealers. “They have a phenomenal distribution and dealer network,” Springer says. “They have No. 1 and No. 2 market share in 70 percent of their markets. The opportunities that will arise will be in dealers on both sides that might be No. 3 or No. 4 in market share. Or if a Cobalt dealer carries a competitor … we are looking at this in a very bifurcated fashion — what dealer’s best for Cobalt? What dealer’s best for Malibu?”

Distribution was also a factor in Volvo Penta’s announcement in July that it was buying Seven Marine, a Wisconsin- based manufacturer of the industry’s largest-output engines.

Seven Marine says it will benefit from leveraging the extensive Volvo Penta service and distribution network for its outboard engines — to date Seven Marine engines have been distributed through OEM customers for new installations and authorized service centers for repower applications, something Volvo Penta of the Americas president Ron Huibers does not think will be problematic for the Volvo Penta dealers who carry competing outboard brands.

“I think we all know that in this industry … we see dealers that carry multiple brands,” says Huibers. “We as a company like to earn our way to being the preferred supplier, and the preferred best business partner. We don’t see a conflict there. … We compete every day, and competition is a good thing.”

Ben Dorton with Mark Schwabero photo

Brunswick CEO Mark Schwabero (right) with Ben Dorton, whose Heydey brand is now part of Brunswick's Bayliner.

Chasing the outboard segment

Sterndrive sales have continued to be challenged since the recession, but Cobalt Boats actually gained market share in the 20- to 40-foot sterndrive segment during the last seven years.

“The smaller stuff has gone the outboard route. We have gained a lot of share. We went into the recession with mid- single-digit market share, around 5 or 6 percent,” St. Clair says. “There are three players now with double-digit market share in that 20- to 40-foot sterndrive segment, and we are the clear leader.”

However, Springer acknowledges that Cobalt’s recent entry into the outboard market and wake surf segments made the company particularly attractive. “This is not an acquisition of a sterndrive company,” he says. “We see significant opportunity to expand the brand’s reach. The outboard segment represents a big white-space area.”

Cobalt Boats offers a 25-foot outboard and plans to expand that with a smaller and a larger outboard boat model, St. Clair says. “We were a little late to the party with outboards, but it’s clearly a growth segment, and clearly the consumers out there are looking for outboards with the Cobalt fit and finish, and Cobalt quality.”

Volvo Penta’s purchase of Seven Marine marks its entry into the outboard segment for the first time since 1979 — a category in which Yamaha and Mercury control roughly 80 percent of the market, Swartz says. “This is about Volvo Penta getting into the outboard segment in a big way,” Huibers says.

Wake segment is hot

Outboards aren’t the only segment some builders seem eager to tap into. Bayliner president Keith Yunger said after the August 2016 purchase of Heyday, a value wake surf brand developed by Dorton and his son Ben Dorton targeting the millennial and Gen X markets, that getting into that wake segment was key to the decision. (Prior to purchasing Bryant, John Dorton had spent much of his career at the helm of MasterCraft.)

“The wake/surf category is an attractive and growing portion of the recreational day boat segment, and particularly for those seeking a more affordable way to enjoy these popular water sports,” Yunger said after the sale. “This action affords Bayliner speed to market with wake/surf models that were specifically designed to meet the performance expectations of wake and surf enthusiasts, but will retail at a more affordable price point, further contributing to the growth of this boating category.”

Springer says Malibu will also help Cobalt further develop the wake surf models it introduced last year, adding that the companies will look at adding the Surf Gate technology that several builders in the tow boat segment are licensing. “If we do it correctly, we’re going to own surf in sterndrive and towboats,” he says.

“Our surf business has been very good,” St. Clair says. “That’s a big part of our growth this year. But Malibu is the inventor of surf, right? So for us to be able to take the momentum we have generated over the last couple of years and take advantage of their expertise, it’s a great combination. They know surf better than anybody.”

Bryant has also debuted three surf models, as well as three outboards, in its mix, Dorton says, adding, “Everybody’s doing the same thing.”

MarineMax continues growth

Publicly traded MarineMax, the industry’s largest boat dealership chain, has also been on an acquisition path, although CEO Bill McGill is quick to point out that it is very selective in making those decisions.

In January the company bought Hall Marine Group and its six locations in the Carolinas and Georgia, expanding its presence in the Southeast.

“From MarineMax’s standpoint, prior to the recession they were acquiring things far-flung,” Swartz says. “Now they’re looking at acquisitions that are more contiguous to their footprint, along the Atlantic seaboard and in the Great Lakes, for example. There are some natural synergies operating these along the coasts.”

Larry Russo Sr. opted to sell Russo Marine to MarineMax in April 2016, the largest MarineMax acquisition since 2006 until its purchase of Hall Marine. Though his sons Larry Russo Jr. and Alex Russo continue to run day-to-day operations, Russo says the acquisition made sense for reasons apart from having a succession plan.

“This is the next step in the evolution of a business,” Russo said at the time. “It would be challenging for us to take our business to the next level on our own. Only MarineMax offers the products, services, team support and other resources necessary to keep growing.”

Leveraging MarineMax’s inventory was another factor in the decision. “If you look at real synergies, the ability to access inventory both new and used all across MarineMax for Russo is a huge synergy,” McGill said after the acquisition. For example, the Boston Whaler 420 Outrage — a boat that had been in high demand and had a large backlog — would potentially be available four to six months earlier to MarineMax than it would be to a private dealership, McGill said.

Adding brands such as Azimut and Ocean Alexander to the Boston region will benefit both, McGill said. An additional path to financing and insurance, through Newcoast Financial Services, for example, will help customers get financing for boats. “We have a real competitive advantage over almost any dealer that’s out there in the marketplace today, and of course that becomes an advantage for Russo,” McGill said.

That was also the case with Hall Marine, McGill said, adding that MarineMax also will now better serve the many boaters who migrate along the Atlantic seaboard. Hall gets to realize the strength of MarineMax’s balance sheet and the fact that the company inventories a lot of product.

“Everyone believes we’re in an up-cycle,” Dorton says of the dealership mergers and acquisitions. “There’s a lot of capital sitting waiting to be employed. The industry has got a lot of people at or nearing retirement age. A dealer might even be in his late 50s or early 60s, but thinking that if we get hit hard again he might be in his 70s before the dealership comes out of it again. There’s a lot of money on the sidelines waiting to be put into the game, and values are high right now because most businesses are doing well.”

Suntex Loggerhead Marina Photo

The consolidation trend extends to marinas, too. Suntex earlier this year acquired 11 Loggerhead facilities, including this one in South Miami, making rapidly growing Suntex the largest marina operator in Florida.

OneWater’s rapid ascent

The industry is cyclical, says Matt Gruhn, president of the Marine Retailers Association of the Americas, which means this is not the first time it has seen more buyouts.

“If you go back and look, we’ve gone through this cycle before with acquisitions, and that’s what happens in a good market like this,” Gruhn says. “The consolidation looks to be very healthy. The messages we’re hearing from the organizations acquiring and those being acquired is all positive. It’s part of a healthy market and industry.”

That has given opportunities to OneWater Marine Holdings, which has an aggressive expansion strategy and actively targets dealers who are looking for a way to retire, either because they don’t have children or the ones they have aren’t interested in running the business.

OneWater was formed in 2014 when Atlanta-based Singleton Marine announced a merger with Florida-based Legendary Marine, giving former Legendary owner Fred Pace an exit strategy. Singleton and Legendary were placed under the OneWater umbrella, along with previous Singleton acquisitions — Dallas-based Phil Dill Boats and SMG Wake Houston.

Singleton founder Austin Singleton says those two early acquisitions at the onset of the recession caused a light bulb to go off. “When the downturn came in 2007, 2008, some opportunities jumped out at us,” Singleton said last year.

“In our industry there is no exit strategy for principals in dealerships,” he said in an April 2016 interview. “Most of the succession plan has to do with the next generation, but if there’s not a next generation, there’s really no way for anybody to exit, for whatever reason — age, health. Marine dealerships just don’t go on the market and people go out and buy them. I don’t know — it was like a light bulb.

“During the downturn a lot of people put their heads in the sand,” Singleton says. “We just took a different approach. We got super-aggressive.” The company began to focus on pre-owned, parts, service and storage instead of new-boat sales — “things we could do to get margin dollars. Plus, during the downturn a lot of dealers who had availability of credit or cash did really good because you were able to benefit from some of the issues in the industry.”

Most of the principals have chosen to stay on board to continue running operations, which makes the decision to relinquish the family business easier, Singleton says, but not all.

“The principal can relax and can get back to why he was in the business to start with, which was to interact with his customers,” Singleton says “He doesn’t have to deal with HR, or accounts receivable and payable. He doesn’t have to deal with marketing or stress out maintaining a relationship with manufacturers and floorplan providers. We take all that off him.”

Marinas

Owners are also looking to retire on the marina side, and most notably, Suntex Marina Investors LLC has taken advantage of that. Suntex, an owner and operator of marina properties, raised more than $200 million of equity commitments in a series of private placement transactions in the fall of 2015. At that time it also acquired the assets and personnel of Suntex Waterfront Advisers, a manager of marina properties.

The combination of equity commitments and third-party debt financing will provide it with more than $500 million of buying power to acquire domestic marinas — and the company has used those assets to buy and upgrade marinas across the country. Notably, in April Suntex Marina Investors said it would purchase 11 of Seven Kings Holdings Inc.’s Loggerhead Marinas, making Suntex the largest marina operator in the state of Florida.

After buying two more marinas in California this summer, Suntex now owns 45 marinas in 13 states from Texas and Oklahoma to Massachusetts, including 13 in Florida. It also manages several more. The marina industry has been attracting investment dollars in part because of the real estate bust. But it’s largely because of new tax efficiencies in that space, Stephen Lehn, principal and operations head for Suntex Investors Group, said last summer.

A 2013 Internal Revenue Service decision determined that boat slips within a marina that are leased to boat owners constitute real estate assets for the purpose of real estate investment trust rules.

“That was a game changer for a lot of institutional investment groups to become players in the marina space,” Lehn says. “That’s a big reason larger investment groups have reached out and thought this must be a good opportunity.”

Several groups that have sold marinas to Suntex lacked the capital to update facilities and reinvest in properties to attract today’s boaters, he says. The $200 million in capital that Suntex has gives the company half a billion dollars of buying power to continue acquisitions.

“In the case of Suntex, it’s a recurring revenue play, and it’s not as beholden to new-boat purchases,” Swartz said. “It’s more of a traditional private-equity type of model going in and rolling these things up.”

Additional acquisitions

The buyouts have come across virtually every space in the marine industry — Active Interest Media, which owns Soundings Trade Only, sold Show Management in March to London-based Informa in conjunction with the retirement of Show Management CEO Efrem “Skip” Zimbalist III.

Show Management, formed in 1976, has produced several major boat shows — including the Fort Lauderdale International Boat Show and Yachts Miami Beach — for years. In 2006 the company was purchased by Active Interest Media, the publisher of more than 50 consumer enthusiast magazines, including Yoga Journal and Yachts International. Informa, which delivers 200 industry events annually, including the Monaco Yacht Show, is listed on the London Stock Exchange and is a member of the FTSE 100.

Volvo Penta Seven Marine photo

Engine builder Volvo Penta has entered the outboard segment in a big way with its purchase this summer of Seven  Marine. 

AIM president and CEO Andrew Clurman said at the time that the sale would enable AIM to invest and grow its digital video, online education, marketing services and events in other areas.

In late June, publicly traded West Marine, based in California, said it was being bought by the New York-based private equity firm Monomoy Capital Partners for $12.97 a share and will be privately held after the transaction.

The private equity firms have been more active in spaces outside boatbuilding because of lessons learned in the recession, Swartz says. “A lot of boatbuilders were owned by private equity prior to the recession, and there was a lot of money lost on that. It really tested the limits on how cyclical boats can be just in the depth of that recession,” he says.

Brunswick Corp., which has actively been acquiring parts and accessories manufacturers, as well as distributors, bought Thunder Jet in July, in addition to the Heyday brand it added to its Bayliner brand. Thunder Jet builds heavy- gauge aluminum boat models in three series that include outboard, offshore and jet.

Thunder Jet’s more rapid replacement rate, higher price points and higher margins than typical of aluminum boats made the company an attractive acquisition despite Brunswick’s primary focus on parts and accessories companies, Brunswick chairman and CEO Mark Schwabero said at the time.

“They do have a captive boat business however you look at it, and they can wring out some synergy if they’re buying something that didn’t previously use their engines,” Swartz says. Thunder Jet had used an engine builder’s products that compete with Brunswick-owned Mercury.

Yamaha Marine also acquired Bennett Marine, an industry leader in hydraulic trim tabs. The Florida-based company recently introduced its Bolt electric trim tabs and AutoTrim Pro automatic boat-leveling system.

“Through the acquisition of Bennett Marine, Yamaha Marine has the capability to further broaden our offerings to boatbuilders and provide even greater integration of Yamaha marine systems,” said Yamaha Marine Group president Ben Speciale. “Bennett Marine has a long-standing reputation for building durable, reliable trim tab systems that can be found on boats all over the world. The integrity of the Bennett Marine brand aligns well with the Yamaha Marine brand and we look forward to delivering top-quality products together.”

“Some high-quality, innovative companies that are resource-constrained, you could see be acquired” at some point in the coming year, Swartz says. “The trend in marinas and dealerships is going to continue. The timing is right, so I think we’ll see companies strike while the iron is hot.”

Dammrich says it remains to be seen whether consolidation will result in a healthier industry, adding that it is not as fragmented as it appears.

“We talk about boating as this large, amorphous industry, but it’s really a bunch of small industries,” Dammrich says. “What really does the ski boat industry have in common with sailing or offshore fishing? They’ve got things in common, but they’re two different markets. What we have is a number of small markets where there’s intense competition within that market, but much less competition between market segments.”

Swartz sees it somewhat differently: “There’s 1,100 boat manufacturers. Do we really need 1,100 boat companies? No. There are certainly success stories, but for every success story there are 10 or 15 companies that never gain broad distribution and are selling boats out of the garage.”

This article originally appeared in the September 2017 issue.

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