The marine industry is “unusually fragmented,” and Chris-Craft president Stephen Heese thinks that will continue to change in the coming years.
“Public companies have capitol and private companies don’t unless they lever up with debt,” Heese told Trade Only Today after announcing Winnebago would buy Chris-Craft.
“The marine industry is fragmented, and it’s unusually fragmented given its maturity,” said Heese.
That’s because boat building has become more sophisticated, so increasingly, it takes scale, Heese said — and not having it will “squeeze out the little guys.”
The consolidation has been going on for some time, Heese said, pointing to Malibu’s acquisition of Cobalt Boats, MasterCraft’s purchase of Nautic Star, and Correct Craft’s purchases, most recently of Bryant Boats.
Winnebago’s purchase of Chris-Craft was one of several announcements in the last week; Polaris also announced it had struck a deal to buy Indiana-based Boat Holdings, which includes Bennington Pontoons, Godfrey, Hurricane and Rinker.
Patrick Industries Inc. also completed its purchase of Dowco Inc., a manufacturer of boat covers, bimini tops, boat enclosures, mounting hardware and other accessories.
With the exception of Correct Craft, all the acquisitions were made by public companies.
Winnebago CEO Michael Happe told analysts on Thursday that the company will look to expand Chris-Craft into new segments.
“We will very, very carefully nurture the Chris-Craft brand, but we would also like to make the Chris-Craft brand a little more accessible both in terms of product offerings but even with price offerings in the future,” Happe said at Baird's 2018 Global Consumer, Technology and Services Conference.”
“If you just look at the industry, we’re selling a third fewer units, but we’re selling 10 or 15 percent more dollars, which says the average dollar price has gone way up in the market,” said Heese. “So it’s a bigger, more sophisticated machine that’s getting sold. These are slow shifts over time but they’re seismic over 10 years.”
“I don’t know if it’s good or bad,” Heese said. “It’s good for us, I don’t know if it’s good for boating. It’s tough for the average families, the guys coming in who want to boat. It’s expensive.”
In the last two years, Chris-Craft has gone from a $40 million sales company to a $60 million sales company, said sales vice president Gavan Hunt.
It is looking to grow to a $100 million company in the next few years, Hunt said.
“We will look to have healthy growth, look to focus on our exclusive brand, and growing it at a nice comfortable pace,” said Hunt.
Analysts reacted positively to the Chris-Craft acquisition.
“We like the deal; we are very bullish on the boat industry, and Chris-Craft's premium brand and customer overlap fits nicely with Winnebago,” wrote Gerrick Johnson, an analyst with BMO Capitol. “We suspect Winnebago will be able to unlock additional capacity and drive incremental synergy upside.”
Details of the transaction were not provided, but management indicated that it expects the transaction to be immediately accretive to fiscal year 2019 earnings-per-share.
Scott Stember with C.L. King & Associates estimated that Winnebago paid no more than seven or eight times EBITDA for the company.
“It’s not like you can just sell it to the highest bidder and feel good about it,” said Heese. “You get to the point in your life where it’s about more than just money. You want people who treat customers the way you want them to be treated. From that perspective, it could not be any better,” adding: “Every company I’ve ever sold has been for a non-disclosed purchase price.”
“This announcement was all the more interesting given Polaris' entrance into the boat market via acquisition just last week,” wrote SunTrust analyst Michael Swartz. “To be clear, we typically have reservations with step-out acquisitions of this nature. That said, Chris-Craft is a unique asset that is relatively small — just 3 to 4 percent of Winnebago’s sales — and is unlikely to distract Winnebago management from its core RV business.”
Swartz also thinks that the transaction will be accretive to both margins and earnings, and that it will help Chris-Craft accelerate growth in the near term.