Soundings Trade Only Today
Reagan Haynes
June 27, 2018
It began with a collaboration to create a Chris-Craft-branded Winnebago.
Those conversations started about a year before Winnebago announced it had bought the Florida boat builder in early June, says Chris-Craft president Steve Heese.
“We started talking to Winnebago to design a Chris-Craft RV to compete with Airstream, and they asked several months ago if we were interested in selling,” says Heese. “We’ve been asked that question by a number of companies in the marine industry and the powersports industry. Getting to know the Winnebago company, we started to understand the investment opportunities. It’s not like you can just sell it to the highest bidder and feel good about it. You get to the point in your life where it’s about more than just money.”
Winnebago Industries Inc. purchased Chris-Craft for an undisclosed amount from Stellican Ltd., which had owned Chris-Craft since 2001.
The boat manufacturer builds 18 models of sterndrive- and outboard-powered boats from 21 to 44 feet. It will be led by the same leadership team in Sarasota, Fla.
Chris-Craft employs “carefully controlled, built-to-order manufacturing and dealer inventory management,” and that will provide an opportunity to share its best practices with Winnebago, the company says.
Winnebago, which is publicly traded on the New York Stock Exchange, will invest in Chris-Craft to support organic growth through increased production capacity, as well as new models. It also wants to expand and improve the dealer network and enter into new boat categories and sizes. There are further brand opportunities by licensing in “adjacent nautically-inspired categories.”
“We will very, very carefully nurture the Chris-Craft brand, but we would also like to make the Chris-Craft brand a little more accessible both in terms of product offerings and even with price offerings in the future,” says Winnebago CEO Michael Happe. Chris-Craft has several 21-foot models as part of its five-year plan.
Gavan Hunt, vice president of sales, says that retaining the current management team will help continue the company’s forward momentum. “The dealers are happy that our team is staying on board,” says Hunt. “We will not do anything that will damage the brand.”
The acquisition is just phase one of Winnebago’s entry into the marine segment. Phase-two plans include a near-term expansion of Chris-Craft’s 170,000-square-foot facility, and the opportunity to scale processes in neighboring areas over time. The company also says that “significant fragmentation in the industry presents the opportunity to leverage Chris-Craft into new categories [and] acquire other strong brands.”
Winnebago spent $522 million to acquire the RV company Grand Design, and leveraged up its balance sheet to 2.8 or 2.9 to make the purchase, Happe says. The company aggressively paid down that debt, but returned to the 1.5 to 1.6 range following the acquisition of Chris-Craft.
Hunt says there are plans to increase Chris-Craft’s dealer network, which has grown by 20 in the last two years and has six more in the works. Winnebago does not expect to see crossover in the two companies’ distribution networks.
Vertical integration is a core competency for both companies, according to Winnebago. There is also “meaningful supply segment overlap” that should increase efficiency of design, manufacturing processes and improve customer-service experiences.
Going public
Winnebago’s purchase of Chris-Craft was one of several acquisitions announced in late May-early June. Polaris, another public company, struck a deal to buy Indiana-based Boat Holdings, which includes Bennington Pontoons, Godfrey, Hurricane and Rinker. (Polaris also acquired the Indian brand of motorcycles from Stellican in 2011.)
The marine industry is “unusually fragmented” for an industry that’s been around for so long, notes Heese, but he believes that will continue to change through consolidation. Now that boat building has become more sophisticated, it takes scale, he notes — and not having that scale will “squeeze out the little guys.”
The consolidation has been going on for some time — Malibu bought Cobalt Boats and MasterCraft acquired NauticStar last year. Correct Craft has also been acquisitive, most recently adding Bryant Boats.
Patrick Industries Inc. announced it completed its purchase of Dowco Inc., a manufacturer of boat covers, bimini tops, boat enclosures, mounting hardware and other accessories, in early June.
With the exception of Correct Craft, all of those purchases were made by public companies.
“If you just look at the industry, we’re selling a third fewer units, but we’re selling 10 or 15 percent more dollars, which says the average dollar price has gone way up in the market,” says Heese. “So it’s a bigger, more sophisticated machine that’s getting sold. These are slow shifts over time but they’re seismic over 10 years.” Heese says that fewer builders selling more expensive boats has been a good trend for Chris-Craft. “I don’t know if it’s good for boating,” he adds. “It’s tough for the average families, the guys coming in who want to boat. It’s expensive.”
Winnebago expects the transaction to be immediately accretive to fiscal year 2019 earnings-per-share. Scott Stember with C.L. King & Associates estimates that it paid no more than seven or eight times EBITDA for the company — Chris-Craft had $60 million in sales last year.
“The Chris-Craft brand is an amazing and iconic brand, and it seems to be more valuable than even the purchase price of the company,” says Hunt.
SunTrust analyst Michael Swartz said the announcement was “all the more interesting” given Polaris’ entry into the boat market. “To be clear, we typically have reservations with step-out acquisitions of this nature,” Swartz writes. “That said, Chris-Craft is a unique asset that is relatively small — just 3 to 4 percent of Winnebago’s sales — and is unlikely to distract Winnebago management from its core RV business.”
Chris-Craft’s luxury customer base is typically less sensitive to fluctuations in the economic cycle, Winnebago says.
“They have a very affluent customer base; 70 percent or more of their customers pay with cash, and these are boats with an average selling price of almost $200,000,” says Happe. It also has a strong international presence, with 25 percent of sales coming from overseas.
A Brand Revival
Chris-Craft dates back to 1874, when 13-year-old Christopher Smith built his first boat. In 1927, Chris’s son Jay Smith was named president and general manager and held the position for 31 years, positioning Chris-Craft as the world’s largest builder of mahogany boats.
After the family-owned business was sold and resold to Outboard Marine Corp., the brand languished, according to a 2006 article in Forbes. Through 2000, it had posted 11 consecutive years of financial losses, and damaged its reputation with years of mass-produced boats. It had also lost the rights to its own trademark when Chris-Craft’s seller, Herb Siegel, retained it for his media company. OMC spent half a million dollars a year to use it.
When OMC filed for bankruptcy, Genmar’s Irwin Jacobs outbid Heese at auction for Chris Craft, but sold it a week later to Heese and his friend from Harvard Business School, Stephen Julius, who had formed Stellican to buy and later sell Riva. Siegel happened to be selling his media company to Murdoch’s News Corp. Murdoch then sold the Chris-Craft name to Stellican for $5 million.
Chris-Craft turned a profit within three years by shedding the cookie-cutter models that provided 70 percent of the company’s sales. It was hard-hit during the recession, as most builders were, but stayed focused and bounced back.
In the last two years, Chris-Craft has gone from $40 million in sales to $60 million, with growth forecasts of about $100 million in the next few years.
“We will look to have healthy growth and focus on growing our exclusive brand at a nice, comfortable pace,” says Hunt.
Winnebago
More millennials and Gen Xers are participating in both the RV and the marine industries, says Happe. Winnebago wants to be more intimately and digitally connected with its customers since 82 percent of them want to be connected when they’re RVing.
The company also has a new specialty vehicle that could eventually become one of the first electrical recreational vehicles brought to market.
Beyond its new products, Winnebago will continue its expansion in the towable sector of the RV industry since towables account for 85 percent of total market share.
The company is projecting 10 percent of its revenues by 2020 will come from segments it had not previously participated in, says Happe. That could mean new RV segments or brand-new ventures like Chris-Craft.