MasterCraft CEO Terry McNew said the company plans to ramp up production in order to meet current demand at NauticStar and will make some initial investments in general and administrative expenses.
“I’m a stickler for safety and housekeeping,” McNew told Trade Only Today after the acquisition was announced Monday. “I’m going to NauticStar tomorrow. You know my background. I’ve done everything from work on the floor to running the largest PD&E program in the marine world. I want to convey to employees that we know what they go through, and we want to make their jobs safer and more productive.”
The company purchased Amory, Miss.-based NauticStar, builder and distributor of 18- to 28-foot bay boats, deck boats and offshore center consoles, for about $79.8 million, giving MasterCraft a presence in the growing saltwater fishing and outboard propulsion segments. NauticStar boats will continue to be manufactured at the company’s current 200,000-square-foot facility.
The transaction is expected to be accretive to MasterCraft’s earnings per share in fiscal 2018.
“They’re about nine units a day. We want to increase that,” McNew said. “We think we can grow that 15 to 20 percent in units the first year. Depending on if we have to add bricks and mortar, which I’m not a big fan of, if we can continue to do that without adding capital — that just affects the timing — I think there’s an additional 25 to 30 percent upside beyond the original increase.”
MasterCraft is constantly reviewing possible acquisitions, but has been patient in looking for the right opportunities, McNew said.
“This gives us entry into outboard propulsion and we’re thrilled about that. It’s the largest, fastest-growing propulsion in the industry,” McNew said.
The plan is to grow the distribution network by adding dealers in new locations, McNew said.
“We only share one dealer, and part of the deal was we’re not looking to put NauticStar through MasterCraft dealerships or MasterCraft through NauticStar dealerships; they’re in different lanes,” McNew said. “There’s great opportunities to add dealers that we don’t have today, out west, Australia, Canada and in Europe — again, not MasterCraft dealers. That will be more a phase two, model year 2019 development. For the rest of model year 2018 we’ll satisfy current dealer demand."
The transaction was a 100 percent equity deal, and NauticStar founder Phillip Faulkner will retire, although he will join the company in an emeritus role at boat shows and dealer meetings, McNew said.
“He’s the founder and face of the brand,” McNew said. “I like to respect those that have gone before us. I think it’s the right thing to do. In the near term, it’s right and proper to have him join in these events, so he will on an ad hoc basis. But no, it’s 100 percent equity, sold out completely.”
“We will deleverage very quickly,” McNew said. “We’re at 2.1 times EBIDTA leverage, but we will deleverage very rapidly, which gives me enough powder to go out and look at something else because it takes a while for these acquisitions to get done.”
McNew believes the industry will continue to see mergers and acquisitions, although he doesn’t think it will ever consolidate like most industries.
“I think OEMs generally have a deeper balance sheet than most dealers, and I think that’s why we haven’t seen them disappear at the same rate,” McNew said. “I think there is some consolidation, but I don’t think most of them are going away. The barrier to entry is completely different” than in other industries.