Seller be Wise

Marina owners need to understand the subtleties of valuations
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Consolidators will be looking at midrange facilities worth $3 million to $10 million as acquisition targets become fewer.

Consolidators will be looking at midrange facilities worth $3 million to $10 million as acquisition targets become fewer.

Heavy activity continues in certain segments of marina and boatyard sales, with paradigms shifting toward corporate ownership and decision-making being mandated from afar. Well-funded consolidators are swooping in to acquire highly profitable mega-marinas (those with 250 to 600 slips or more), and they are doing so with breakneck speed and efficiency.

The goal of consolidators is to acquire marinas in bunches, then spread management costs among neighboring facilities, creating more overall profit. Accounting is usually handled through a central corporate office, often in a different state; buying power for insurance, parts and equipment increases net operating income; and heavy branding, along with more sterile operational protocols, create consistency and brand recognition. Increasingly absent from the docks are personal touches and good old “Capt. Quint” characters to dip up your shrimp, show off tattoos and share sailor stories with the kids.

Until recently, one group of marinas had been spared this fate: lower- to midrange facilities worth $3 million to $10 million that typically produce less overall profit and lower proportionate Class A income streams. Most marinas in this class have maximized profitability by chasing every possible income stream, be it slips, dry racks, blocked storage or restaurant leases. Those repetitive income streams are most attractive to investors who rarely have much tolerance for service, boat sales, engine sales, parts, boat clubs, rentals, bait or fuel when seeking a return on investment. The latter require a deeper level of knowledge, harder work, exceptional people skills and personal attention to customers, which is why they have yet to find favor with consolidators.

The day is coming, however, when consolidators turn their attention to these marinas, too, because as more and more acquisition firms enter the fray, Class A acquisition opportunities dwindle. Investor mandates are driving acquisitions into shallower waters.

Dedicated folks who have been laboring to run successful marinas for years are often no match for the sophisticated financial modeling and deal-making strategies that drive the acquisition process. Sellers often leave real value on the table. They should be paid — handsomely — for the blood, sweat and tears it took to envision, create and operate all they have, and value should be preserved amid the fine print. A significant knowledge gap exists when it comes to valuations and financial sophistication, especially if sellers engage in a transaction without competent representation.

This education gap is especially broad in the acquisition market for boatyards and shipyards. These yards are labor-intensive environments with typically narrower margins and subtle, yet wider, gaps in value analysis. Operators understand that managing customers, technicians and craftsmen brings a unique set of challenges that requires deep understanding of the trades. Investors are more likely to dismiss the value of a sustained and exclusive staff of craftsmen. It would not be unusual for a sizable yard to claim more than 1,000 years of combined experience among 50 or 60 craftsmen. Those guys ensure success for decades to come.

Some acquisition teams try to shift the valuation model to their pricing advantage. They argue that a labor force will bring increased risk thereby justifying a lower multiple of EBITDA or higher cap rate. In many instances, their logic couldn’t be further from the truth. I don’t believe you can assign a numerical value to the craftsmen who work at a particular boatyard or marina, but the value of a workforce is manifest (for good or for bad) in a company’s three-year history of sustained profitability. The inherent value of a top team also will increase the “sellability” of a heavy service yard over one that does not reach that level.

A seller has to be careful not to go too far with repair projects because that money is not typically reimbursed in the final purchase price. 

A seller has to be careful not to go too far with repair projects because that money is not typically reimbursed in the final purchase price. 

What is discernible and impactful from both sides of the table in determining numeric components of value (beyond pure profitability) are costs of deferred maintenance that impact work efficiencies and safety. So if your travelift finger piers are badly cracking or spalding or deflecting, or if power cords that feed the docks are sun-dried and cracked and drooping into the water, fix them. Given the opportunity, buyers will be heavy-handed at the dealing table to assess the costs of repairing those items.

A seller has to be careful, though, not to go too far with repair projects because that money is not typically reimbursed in the final price. In general, only necessary items that impact the operation or are safety-related are projects that should be addressed.

Service yards often bring decades’ worth of well-oiled operational protocols, a huge customer list, outstanding reputations and reliable profitability. Those elements should not be diminished with chants of a reduced earnings multiple or a large cap rate for service income. Barriers to entry into the boat and yacht service industry are significant, if not impossible, to overcome, which means that existing yards actually own the market and will continue to do so into the foreseeable future.

Boat International’s 2019 Global Order Book states that more than 20 miles of yachts are under construction around the world. The number of vessels is constantly and dramatically increasing, and each one must be serviced, maintained and repaired — even during economic downturns. With that kind of information, boatyard and shipyard sellers should stick to their guns when buyers offer to purchase at prices that only work well for them.

There has never been a time when U.S. marinas and yards were in such high demand. Transactions are closing almost every day. Beyond the investor class of acquisition lions are many levels of capable buyers who are acquiring facilities. Such deals tend to be negotiated on a more level playing field, but the valuation challenge remains.

Rick Roughen

Rick Roughen

As the industry moves forward to accommodate a rapidly expanding customer base of boat owners, marinas are stepping up to provide new levels of sophistication for convenient access to the water. Prices are headed upward as demand for the lifestyle increases. Corporate and privately owned facilities are filling the various niches while retirement is becoming a reality for the original pioneers. Overall, the state of marina and boatyard acquisitions continues to be increasingly outstanding, with one simple caveat: Let the seller beware. 

Rick Roughen is the owner of National Marina Sales, a marina and yard brokerage firm based in Boca Raton, Fla.

This article originally appeared in the September 2019 issue.

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