Chris-Craft president Steve Heese, following Winnebago’s acquisition of the boatbuilder in late June, said the fragmented marine industry will continue to consolidate. It was a noteworthy prediction, given that the Chris-Craft deal was one among at least a dozen mergers and acquisitions in the marine manufacturing space between May and early July alone. The month also included one of the priciest marine acquisitions ever: Brunswick Corp.’s purchase of Power Products’ 11 global marine and mobile brands for $910 million.
Other deals included BRP, the parent company of Sea-Doo and Evinrude, buying Alumacraft in late June for an undisclosed price and announcing the formation of a new Marine Group. Navico and C-MAP merged in early July, without disclosing financial terms, stating its goal was to create the “world’s biggest digital marine ecosystem.” Powersports manufacturer Polaris acquired Boat Holdings’ four brands — Bennington, Godfrey, Hurricane and Rinker — in late May for $805 million.
“There’s a lot of capital chasing these guys,” says Michael Swartz, SunTrust Robinson Humphrey equity research director. “The marine industry is pretty fragmented, so there are a number of far-flung smaller players out there that can be acquired pretty easily. This is typically late-cycle activity; that’s why people are looking at boats. For Polaris, Winnebago and Brunswick, some has to do with being publicly traded companies, and the value of being a growth company. Whether it’s organic or acquisitive, investors are expecting that.”
But there are inherent differences between the outside industries and marine, Swartz says. “In RVs, you have three players that command about 85 to 90 percent of market share,” he says. “It’s highly concentrated. That’s also true of powersports, where you have five OEMs that control the market. So there’s not a lot to acquire. But if you look at boats, there are 1,100 manufacturers. It’s highly fragmented. About 900 of those are tiny. But there’s a lot less concentration, so it’s a growth market.”
No sign of slowing
Though the recent rate of consolidation has taken industry veterans by surprise, deals have been happening for a few years. Last summer, Malibu Boats bought Cobalt Boats for $130 million, and in the fall, MasterCraft acquired Nautic Star for $79.8 million.
Before that, Correct Craft fueled its growth through the acquisition of seven other boatbuilders beyond its Nautique brand, along with the Pleasurecraft Engine Group and Aktion Parks. “We’re working on a couple of acquisitions now, so we’re still in the M&A market,” says Bill Yeargin, Correct Craft CEO. “We’ve also walked away from deals because the sellers see the high multiples being paid and want higher valuations. There were several years of pent-up demand before, with plenty of owners wanting to sell but unable to get the valuations they wanted. Now the pendulum has swung in the opposite direction, with valuations above historical levels.”
Valuations have kept climbing. Winnebago didn’t say how much it paid for Chris-Craft, but some analysts estimate it was between 10 and 12 times EBITDA.
“I’m shocked myself at what we’ve seen lately,” Swartz says. “I’m shocked by the multiples. Why today? I think that’s what everyone’s trying to answer. [Mergers and acquisitions are] hot, but I think you’re getting to a point where people are looking at some of these valuations and saying, ‘I don’t know.’ Especially if this is late cycle, you’re not going to spend 12 times EBITDA. I’ve talked to some people looking for acquisitions, and asking prices are just going higher. I think at some point, business owners who are looking to get out are not going to find buyers, especially at those valuations.”
Brunswick’s reversal of its December decision to sell Sea Ray might support that theory. The company said in late June that it would retain the brand, without the yacht segment, because offers didn’t reflect appropriate value (see story on Page 16).
Yeargin sees a similar trend. “It can be tough for sellers who want top dollar,” he says. “We commit to protecting their employees, brand and legacy, but it’s hard to do that at these valuations. Our goal is to create long-term value, but you can’t do that if you overpay.”
BRP looking to expand
Tracy Crocker, senior vice president and general manager of Evinrude and now president of BRP Marine Group, says the Alumacraft purchase is different from past attempts to establish the company in the boatbuilding industry. In 1995, BRP bought Celebrity, an Illinois manufacturer of bowriders and other fiberglass boats, but shut down the unit in 2014 after it struggled post-recession.
“We know aluminum,” Crocker says. “This is not new to us. We certainly have many other aluminum-based products, and we’re taking the long view of what we want to do with this business. … It’s really [about] becoming a marine company, not a powersports company that sells boats.”
BRP is open to other acquisitions “in the right boat segment,” Crocker says, calling out pontoons as one possibility. “Acquisition is one route,” he says, “but it’s also strategic partnerships with key OEMs that may not want to sell but may want a partner who has a vision of what boating will be 10 years or even 20 years from now.”
Crocker calls BRP Marine a mirror image of BRP Powersports in terms of its go-to-market strategy. The company has no plans to roll personal watercraft into the Marine Group. “There are some things around PWC and snowmobiles that can be applied to the boating industry and will make looking at the way a boat is manufactured in a whole new light,” Crocker says. “We are an engineering-driven company that really prides itself on the finished vehicle on the powersports side. We’re looking forward to integrating that into boats.”
Alumacraft will continue to offer various types of propulsion, Crocker says. “They offer several outboard engines, including Evinrude, and will continue to do so,” he says. “We would love to be on every Alumacraft sold, and we’ll do everything we can to earn that. And we’re confident we will, but that takes time.”
The group’s long-term strategy is to make boating more accessible. “Part of that is needing to sell boats that are affordable and also enhance the boating experience,” Crocker says. “All industries have changed from selling the product. We’re thinking of how we can sell the experience of boating. We have some strategic pillars on how we’ll do this, and one of the linchpins is, we’re selling ultimately a boat and engine together. That creates a better experience on the water if it’s done the right way.”
Late last year, Dometic bought SeaStar Solutions, a provider of vessel control systems and aftermarket products, for $875 million. T-H Marine purchased Blue Water LED in late May and Troll Perfect in early June. Those acquisitions involved privately held companies that were established in the marine space, but several recent deals have been done by public companies, some of which had no previous boat or component-manufacturing foothold.
Elkhart, Ind.-based Patrick Industries made five acquisitions this year, starting in February when it bought Madison, Tenn.-based Metal Moulding Corp., which makes custom metal fabricated products primarily for the marine market. Patrick also bought Elkhart-based Aluminum Metals Co., a manufacturer and distributor of RV and marine components. In March, Patrick completed the purchase of Indiana Marine Products Holdings, a manufacturer and distributor of assembled helms.
“Our marine market presence, content and overall business continues to dramatically expand, as our first quarter 2018 revenues in this market, representing 8 percent of our consolidated sales, were up approximately 225 percent over Q1 2017,” Patrick president Andy Nemeth said after its first-quarter earnings release. “On the marine side of the business, we continue to gain share.”
Following that April earnings release, Patrick grabbed up Dowco, a manufacturer of custom boat covers and Bimini tops, full-boat enclosures, mounting hardware, and other accessories and components; the next month, Patrick bought Tennessee-based Marine Accessories Corp.
Lippert Components, another RV components manufacturer, acquired its fourth marine brand when it bought Taylor Made in January. Terms weren’t disclosed, but Lippert Components president Scott Mereness says it was the company’s largest acquisition ever. In 2015, it bought pontoon seating maker Signature Seating in Fort Wayne, Ind.; Highwater Marine in 2016; and Lexington last year. “Our most successful acquisitions involve good products, a good team and a good growth story,” Mereness says. “And we inject a little more capital than the previous owners.”
One thing making the marine space attractive for buyers is the fact that units sold haven’t yet returned to prerecession levels. Swartz says that looking at dollars spent on boats and accessories — a figure that exceeds spending prior to the downturn — might be more indicative of a new industry benchmark. “The boating industry is only 60 percent of its prior peak, but it’s having trouble finding that incremental buyer,” Swartz says. “The prices of boats and propulsion have just gone through the roof. The ski and wake segment is a case in point; the average price 10 years ago was $40,000, and today it’s $70,000. What’s the economic rate of inflation been, and the rate of a boat? It’s probably double.”
Bringing new people into boating is one of the problems the industry struggles with, whereas RV and powersports markets have not had these issues, says Swartz. “RV’s done an incredible job with that, but they also have entry-level towable trailers,” he says. “You don’t have an analog in boating. I don’t want to say it’s a crisis, but it’s a more secular issue with boating.”
Yeargin sees bigger economic headwinds. “It’s a great time to be selling, but the window may close soon,” he says. “With tariffs, a potential downturn forecasted for next year and the normal swing of the pendulum to more historical valuation multiples, it’s likely valuations could drop.”
In the meantime, it’s still a wild M&A ride.
This article originally appeared in the August 2018 issue.