Private-equity investment is an increasingly attractive prospect for boatbuilders, but choose wisely.

The marine industry is attracting increasing levels of interest from European private-equity investors. There have been plenty of recent examples. For instance, in 2004, the UK fund 3i invested in Spanish motorboat builder Rodman and, in 2005, in British yard Fairline. In 2002, 21 Centrale Partners, the investment fund owned by the Benetton family, bought 30 per cent of French yard Fountaine-Pajot. And at the end of 2005, Rhône Capital facilitated a leveraged buyout (LBO) of International Sailing Boats (ISB), the holding company for the Grand Soleil (Italy) and Dufour (France) yards.

Then, at the start of 2006, the Scandinavian fund Altor supported an LBO for the Swedish operation Nimbus, having previously acquired the marine division of Simrad from the Norwegian group Kongsberg a year before. Most recently, in October 2006, came perhaps the most telling transaction of recent years — Candover’s LBO of Permira’s holding in the Ferretti Group, which valued the latter entity at E1.7 billion against a turnover of just E770 million.

So what is it about the marine industry that exerts such a pull on investors more used to taking long, hard looks at the return on investment (ROI) generated by their holdings? And what can the marine industry expect of these new investors?
The marine industry has changed immeasurably over the past few years and faces many new challenges. From the collection of mostly family-owned, craft-based businesses of the 1970s, the industry has become increasingly global in its outlook and so much more industrial in its approach. European yards must now have distribution networks that not only take in the USA, but also stretch as far afield as Australia and Asia in order to reach their customers. And North American yards that don’t penetrate Europe cannot be considered world players. Today, boatbuilders must produce a continual stream of new innovations that deliver greater comfort and higher performance to their wares, while keeping prices competitively low.

Moreover, the economic growth of the BRIC countries (Brazil, Russia, India and China) and the emergence of so many new high-net worth individuals have led to an explosion in worldwide demand for superyachts.

Against this background, boatbuilders and equipment suppliers have had no choice but to adapt and invest. With initial impetus provided by the Brunswick Corporation in the USA, the process of consolidation began in 1986 with the acquisition of Bayliner for US$430 million, followed a few months later by that of Sea Ray for US$380 million and plenty of others since. Today, Brunswick reports annual revenues approaching US$6 billion, with around US$2.8 billion coming from boats and US$2.6 billion from marine engines. There has been plenty of consolidation in Europe too. Just look at France’s Groupe Bénéteau and Italy’s Ferretti Group.

As consolidation continues, private-equity funds have a lot to offer boatbuilders and their sub-contractors. These funds are full of people with impressive experience in strategic analysis, financial business planning and acquisitions. In addition to the obvious financial contribution they bring with them, they can also provide valuable support to company directors, who often find themselves alone at the helm and bogged down in the day-to-day running of their businesses. The very deep pockets of private-equity funds also make them a real alternative to a market flotation (in 2005, the cash inflow to European funds totalled E71.8 billion, 80.4 per cent of which was earmarked for LBOs, and E4.9 billion for development capital). With an investment fund, communication between directors and shareholders is fast, direct and transparent. The financiers take a full and active role in the decisions made by boatbuilders and, if necessary, are prepared to take short-term risks if the business plan enables value creation in the medium to long-terms; something that is much more difficult to achieve when the company is publicly quoted. This releases companies from the ‘whims of the market’, where they can be particularly vulnerable to under-valuation of their shares in times of economic difficulty, which in turn can prevent an acquisition where payment takes the form of shares. Recent examples also demonstrate that LBO funds may also be prepared to pay more than could be raised by a market flotation — as Candover’s recent acquisition of Ferretti demonstrates yet again! There’s no question here of non-liquidity discounts.

But, then again, not all investment funds are the same, and the previous description of private-equity teams doesn’t always hold true. It is very important to find out as much information as possible about the investment track record of the funds concerned, and to have no hesitation in asking for references from the directors of companies in which those funds have already invested. As the marine industry consolidates, it is also very important to evaluate the team’s ability to implement build-up strategies, which can be major sources of value creation and of the adaptability companies need to thrive in a global context.

Conversely, investment funds have little data about market prospects for the marine industry and the competitive environment in which it operates. Little official statistics are available from the various national marine industry bodies. Added to which, understanding how the marine industry works is not always easy. The marine industry is highly specialised — it has to reconcile creativity, design and performance with productivity, quality, competitiveness and internationalisation. These are the challenges facing this industry; challenges that in many ways reflect those facing other luxury goods industries.

So, should you consider the private-equity route, make sure you find yourself an open-minded adviser capable of building bridges between your company and the world of finance and private equity!

Back to main Industry comment page    Top