This summer’s sale of privately owned Cobalt Boats to Malibu Boats is expected to hasten the expansion of Cobalt’s new presence in the outboard and wake surf segments, both parties say.
The $130 million deal was announced late in June and closed in early July. The combined business is expected to deliver about $7.5 million in synergies and operational improvements that should be realized by the fourth year post-closing, the companies say. In addition, they project about $18 million in expected tax benefits.
The deal was “not an acquisition of a sterndrive company,” but the purchase of a company that offers several opportunities, given Cobalt’s entry into the outboard and wake surf segments last year, says Malibu CEO Jack Springer, who emphasized the potential in the outboard segment during a conference call with investors and analysts.
The outboard market has been the largest-growing segment in the industry, says Springer. “We see significant opportunity to expand the brand’s reach,” he says, adding that he thinks it can be grown by developing new product. “The outboard segment represents a big white-space area. That’s really what has made this so compelling for us.”
Cobalt CEO Paxson St. Clair, who becomes Cobalt’s president in the new structure, says some of that white space will be filled in the next three months. Cobalt’s one outboard model, a 25-footer, is to be joined by two others. “We’re going to unfold on both sides [of the 25] with a smaller and a larger outboard,” he says.
“Some leaders have gotten into the outboard segment — Sea Ray, Formula to some extent, Chaparral to some extent — and Cobalt came in behind,” says Springer. “They’re in the process of making up ground, and we believe we can make up that ground faster.”
St. Clair acknowledges the late start. “We were a little late to the party with outboards,” he says, “but it’s clearly a growth segment, and clearly the consumers are out there looking for outboards with the Cobalt fit and finish and Cobalt quality.”
Malibu can also help Cobalt further develop the wake surf models it introduced last year, Springer says, adding that the companies will look at adding the Surf Gate technology that is being licensed by several builders in the tow boat segment. “If we do it correctly, we’re going to own surf in sterndrive and towboats,” he says.
St. Clair is enthusiastic about Malibu’s potential help in this segment. “Our surf business has been very good,” he 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.”
Springer says Cobalt also can benefit from the vertical integration that Malibu has been implementing at its own plants, but he emphasized that will not carry over to engines. “Malibu’s in the process, for the 2019 model year, of bringing out our own power plant, so our engines we’ve developed with GM will go into the Malibu and Axis brands.”
However, Malibu has made certain acquisitions, such as a tower manufacturer, that has allowed it to bring those operations in house, allowing Malibu to “control design, supply chain, quality and control pricing to the consumer to the tune of $2,000 or $3,000,” Springer says. “We eliminated that middleman.”
The company has tamped down its reliance on Asian manufacturers by setting up a large plant in California to make things such as grab handles, cleats and rub rails, and that has expanded throughout the year, Springer says. “The majority of stainless or billet on the boat is from our plant,” he says.
“The third leg to the stool currently would be the opportunity for trailers,” Springer continues. “We brought that up, and that was an extremely successful product. To the extent that we can manufacture trailers for Cobalt, we’ll look at that, as well.”
Springer stresses that there’s not going to be “a lot of trading back and forth” among dealers. “They have a phenomenal distribution and dealer network,” he 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?”
For example, if a Cobalt dealer is No. 1 in a given market, but a Malibu dealer was, for whatever reason, No. 4 or No. 5 and had not demonstrated the ability to get better and was not taking advantage of training programs Malibu offers, “that might be a situation where we’d say, well, who is the best dealer?” Springer says. “Similar to what we do today. Logically that Cobalt dealer would be someone we have more interest in, and vice versa.”
By and large, Cobalt dealers are “excited” about the acquisition, having watched Malibu grow “at a very high rate,” St. Clair says. “If there are any concerns it’s a kind of fear of the unknown. That’s the minority.”
An edge in Europe
Springer sees opportunities in Europe growing for both companies. “When you combine a brand like Malibu and Cobalt and put that in Europe, it’s going to automatically have a much better genre of product to attract dealers with,” Springer says.
Malibu has about a third of European market share — two other tow boat manufacturers each have about a third of that share, Springer says.
“But I think for both parties, you don’t always necessarily have the opportunity to get the best dealer in a country, but with the combined product that will give us an advantage.”
Malibu also has about 80 percent market share in Australia, which could present another opportunity for Cobalt. “We have to have a better understanding of the distribution over there, but we think it could,” Springer says.
Cobalt Boats is a market leader in the sterndrive segment — the only sterndrive maker that has not seen declines, Springer says. “The sterndrive business has, as we all know, over time decreased,” he says. “Cobalt is uniquely situated there. They have an extremely loyal client base, and we think we can grow that base. They are a market share leader.”
Malibu can help Cobalt grow in its newly entered segments, Springer says. “I would love to increase the velocity of new products to market,” he says.
During the past five years Malibu has looked at acquiring almost two dozen companies, but has been very selective, Springer says.
After the transaction is completed, Malibu, with its headquarters in Loudon, Tenn., will maintain operations in Neodesha, Kan., Cobalt’s headquarters, Springer says.
“We plan to keep [manufacturing operations] there,” he says. “They are very different boats; we’ve built out our plans to accommodate Malibu and Axis. We foresee for the long future a scenario where Cobalt will continue to build sterndrive and forward-drive boats and operationally continue to do what they’re doing.”
In addition to leading the Cobalt business as president, St. Clair will hold a seat on Malibu’s board of directors.
The agreement is subject to adjustment for any settlement or judgment in connection with pending patent litigation between Cobalt and Sea Ray Boats, which is owned by Brunswick Corp. Malibu, which has won several patent litigation suits regarding its wake surf technology, will be watching the outcome of that litigation.
An ‘outstanding’ fit
“This is an outstanding opportunity for Cobalt, our employees and our dealer network,” St. Clair says. He says Cobalt “looked at a few other opportunities out there, and the one thing most attractive about Malibu was their approach to the business. What has made Cobalt successful to date will remain. The full team stays on board with us. We will remain in Neodesha and will remain the same, along with those opportunities for growth that Malibu brings to the table. And I think it fits very well with the Malibu culture and approach to business.”
“The transaction process itself has been fantastic for developing a relationship,” Springer says. “I’ve been very impressed with the whole integrity of the way they carried this out on their side, and I don’t think we could ask for a better partner.”
Cobalt, founded in 1968, is the market leader in the 20- to 40-foot sterndrive segment, St. Clair says. “There are three players now with double-digit market share” in that segment, he says, “and we are the clear leader. With the latest quarterly results we had a nice gain and nearly a two-point lead over second place.”
For the 12 months that ended March 31, Cobalt generated about $140 million in net sales. The company sells its 24 models through a dealer network of 132 locations in the United States, Canada and overseas.
This article originally appeared in the August 2017 issue.