Answer within

Outside investment has never been the lifeline needed for some boatbuilding operations, raising the question: is the solution consolidation?

Written by David Tydeman

21 June 2021


The recent announcement of a joint venture between two of the larger boatbuilder players in Italy – Ferretti and Sanlorenzo – as the likely future for Italian superyacht builder Perini Navi raises a handful of interesting questions that can be applied to the entirety of the leisure boatbuilding sector. When a marque hits crunch point, what are the reasons for another company or investor stepping in? Is it the romance of the brand, or is it nostalgia?

Perhaps it’s a perception of residual value in the brand that can boost a new range, even if that range is a complete departure from the brand’s traditional market offering. Or, is it merely a question of leverage and is a consolidation of boating brands – in a mirror of what has happened in the automotive industry – merely a way of ensuring future survival while driving efficiencies of scale? Perhaps most importantly, what does it mean for the client at the end of the line – boaters themselves?

Perini collapsed last month as its wealthy Italian family shareholders struggled to set up a rescue plan for a rumoured €100-million (AU$157,323,729) liability for their brief period of owning this trophy brand. That’s not to say that Perini has lost all that money, but when trading losses are combined with guarantees issued for the delivery of the contracts, the sums mount up.


Enter Ferretti and Sanlorenzo, whose much stronger balance sheets should mean that client contracts in the future can be undertaken without the yard having to give the same type of guarantees – and hence run with less impact on working capital.

This certainly is one aspect, but it’s by no means the only one. Often there is a romance about a brand or the industry, which can become irrational. And sometimes, the brand itself does have residual value when consolidated into larger groups, especially when there is an existing, loyal brand client base – even if it does take a while to ferment under new ownership. Wally, now owned by Ferretti, is a classic recent example.

The consolidation and rationalisation of boat manufacturing brands into larger groups is gathering pace, and is necessary for the industry to address a number of challenges and peripheral issues.

Quite often, it’s to the benefit of the end user; if they are even aware of their favourite brand’s change of ownership. There are, of course, barriers to consolidation, and these stem from decades of fragmented ownership structures and many ill-conceived acquisition strategies.

In the late 1990s, I took part in a study with the UK Department of Trade to identify the distortions in the market caused by investors who funded their boatbuilding losses through wealth made in other areas. The study concluded that such trophy asset ownership was prevalent in the industry across both the US and Europe, and this still exists today. It is, however, beginning to be in stark contrast to the larger European groups – particularly in Italy, France and Germany – who are consolidating and listing on stock markets with greater transparency of reporting and accountability.

An early example was the acquisition of the Italian brand Riva by British company Vickers in the mid-1990s. At that time, the company owned Rolls-Royce and Bentley, and it wrongly assumed it could sell Rivas through the car dealerships. After Vickers exited the car industry – selling Rolls-Royce to BMW and Bentley to VW-Audi in 1997 – Riva was bought “for a pound and some debt” by the entrepreneur Stephen Julius, who some years later sold the business profitably to Ferretti.

However, the Ferretti Group hasn’t always got it right. It looked like a clear winner from the 2000–2007 boom period, with profits at its peak of approximately 17 percent on sales of €770 million (AU$1,218,228,550), and growth levels averaging 20 percent per annum. Between 1998 and 2006, Norberto Ferretti, backed by the private equity fund Permira, made a series of acquisitions.

The trophy brands acquired included Bertram, Pershing, CRN, Riva, Apreamara, Mochi, Pinmar and Zago and, at the same time, the new Custom Line was introduced. With good timing, Permira sold a 60 percent share in this portfolio to Candover for €1.7 billion (AU$AU$2,689,739,136) not long before the group collapsed, and then the Chinese state-owned Weichai group acquired 75 percent for just €180 million (AU$284,871,600) and €200 million (AU$316,525,526) of debt.

Consolidation comes not only in the form of umbrella companies, however.

In Italy, for example, the competing boatbuilders have worked successfully with their suppliers. Along the 50-mile stretch south of Genoa from La Spezia to Viareggio, many competing brands are co-located with a very strong contracting base. As a result, the Azimut-Benetti Group, Sanlorenzo and the Ferretti Group – among others across a portfolio of brands – comfortably rely on sub-contractors and suppliers in a vertically integrated partnership that is strengthening a competitive difference.

Sanlorenzo also ran a successful IPO in autumn 2019, positioning itself well to strengthen its portfolio. In France and Germany, many of the brands started as family names – Henri Jeanneau, Annette Roux/Beneteau, Michel Dufour, Willi and Heinz Dehler, to name but a few. Groupe Beneteau has been a global market leader for decades and started consolidating brands in the mid-1990s with its acquisition of Jeanneau.

It has acquired and developed many other brands since then, including CNB and Monte Carlo, and in September last year announced bold moves to reduce the number of brands it markets from 12 to eight, closing its USA manufacturing plant in South Carolina and concentrating globally on four segments – dayboats and weekenders up to 40 feet; floating real estate from 60–80 feet; monohull sailboats and multihull sailboats. It has been a listed company for a long time with associated clear reporting, and this contrasts with the lack of real market data available from much of the industry.

Beneteau’s corporate website promotes the company as a “group in transformation”. Deciding it can address the monohull sailing market without the Bordeaux/CNB brand, focusing on its Beneteau and Jeanneau yachts, and strengthening its powerboat market position without the Monte Carlo brand competing internally with its Prestige brand is a strong message.

Adopting terms like floating real estate is also very clear and, to me, emphasises the trend of separation between the larger boatbuilding groups and the niche players.

Thirty years ago, I ran Beneteau’s UK operations. At that time, around 65 percent of Beneteau’s production was monohull sailing yachts with the charter fleet clients emerging as strong buyers. The Beneteau USA plant had just opened and Jeanneau, including its Lagoon brand, was still a competitor.

Contrast that to now: overall, 50 percent of Beneteau group sales are powerboats, many of which are small dayboats and weekenders; 20 percent of sales go to charter fleets; and the remaining 30 percent splits equally between catamarans and monohulls. Sales of monohull sailing yachts to private clients in 2020 were less than half those before the financial crisis, and this has been a deliberate strategy.

In Germany, the energy for consolidation is being led by the Hanse group, also a listed company. It has looked at other brands over the past decade, including trying to add Oyster Yachts to the portfolio following a successful integration of the British brands Moody Yachts and Sealine powerboats alongside its Hanse, Dehler, Privilege Catamarans and Fjord brands. I can also see the benefits of Bavaria and Hanse merging, and understand that Hanse looked at this in 2018.

Bavaria is another trophy asset story that has yet to conclude in my view.

By 2007, the founder had developed the company successfully to the point where it was building more than 3,000 boats a year in factories that had been purpose-built, with production of 40–50 units in a line moving station every hour.

Goldman Sachs and Bain were so impressed with this operation, which was making a very strong profit on €280-million (AU$442,721,427) turnover, that they paid a high multiple taking on the business for €1.4 billion (AU$2,213,608,999) of debt and equity.

But with collapsing dealer orders through the financial crisis, the business went into serious decline and Oaktree and Anchorage private equity firms looked like clear winners as Goldman and Bain made huge write-offs.

These new shareholders went on to rescue two other builders – Grand Soleil and Dufour – and this move to consolidate three brands at heavily discounted values to the boom years initially looked good. However, over the next few years, Dufour was taken over by its management, Grand Soleil was sold, and Bavaria went into administration in 2018 before being rescued by another private equity fund.

In the UK, Graham Beck – the South African mining magnate – acquired Princess Yachts in the 1980s and added Fairline in the 1990s. He successfully sold Princess to LVMH owner Bernard Arnault for £200 million (AU$368,190,000) and Fairline to a management buy-out for around £50 million.

Fairline subsequently went through administration and collapse in 2015. Sunseeker went through several rounds of refinancing with some astute Irish investors acquiring a majority stake before making a significant multiple on their investment and selling to the Chinese Wanda Group for around £300 million ($AU552,522,710) in 2013.

I can imagine another strong consolidation here if the two very wealthy owners behind Sunseeker and Princess could reach consensus about their trophy brands and then agreed something with the much smaller private equity fund RiverRock, which now owns Fairline.

In my view, this would give the UK a significant group both to compete with the larger groups in Europe and to address the green agenda. But I know from first-hand experience this is not easy. In 2010, when Oyster Yachts was owned by private equity, the shareholders and I – then as CEO – looked carefully at the idea of merging Oyster with Nautor’s Swan and with Hinckley in the US.

The vision for this group of brands was to clearly separate the design of cruising and racing yachts across Oyster and Swan, and to develop the powerboat side of the business with Hinckley. (At that time, Oyster was still building the OM43, its waterjet-driven powerboat.)

While all could see the benefits of a larger group, the expectations of relative values were so different that the concept was abandoned, but it did provide a useful experience for those involved.

Overall, in Europe, Candover, Permira, Goldman Sachs, Bain, Rhone Capital, Oxford Investments, Balmoral, 3i, Alchemy, Anchorage, Oaktree and others, together with private individuals and senior and mezzanine financiers, wrote off combined losses of well over €5 billion (AU$7,903,961,010) between 2007 and 2013 as trophy brand values were readjusted.

As a significant aspect of the subsequent restructuring, outsourcing production to lower-cost labour markets have also been a successful strategy in Europe. Beneteau’s acquisition of Delphia Yachts is a strategic decision to use Delphia’s manufacturing in Poland, where overall more than 20,000 boats are being built on average per year across a wide spectrum.

The huge success of Axopar powerboats has in a large part been down to its decision to build in Poland, and the Hanse Group leverages an extensive operation in Poland just across the border from its headquarters in northern Germany.

Two other key aspects are creating energy for consolidation. There are significant changes taking place in the retail distribution side and in the supply chain, particularly in the US where there is a big overlap between the recreational vehicle (RV) market and the boating sector.

The American retail side is consolidating and demanding even higher dealer margins from boatbuilders so economies of scale in production become more essential.

The huge group MarineMax, now with nearly US$2 billion (AU$2,663,569,946) annual sales, has been pushing an acquisition strategy focused on the lifestyle aspects of boating as much as the product itself. Its list of acquisitions includes SkipperBuds marina operations, the superyacht/charter broker Fraser Group, and the Northrop and Johnson brokerage, together with a marine insurance agency.

MarineMax and OneWater, another US mega-dealer – both listed companies – have stronger balance sheets than the builders whose brands they distribute and this type of shift in power changes manufacturing strategies, particularly when these large players can insist on buying product landed US so the European manufacturer has to take the import risk.

Lippert Components and Patrick Industries in the US – two more listed companies – both supply the RV and marine market and are also pursuing aggressive acquisition strategies creating scale, synergy and research and development prowess while diversifying risk across end-user markets.

On the electronics side, Furuno, Garmin and others have also been driving strategies that keep their reliance on the marine leisure sector in balance. In the mast business, Southern Spars acquired its competitor Hall Spars and integrated the Future Fibres rigging business, leaving only two key mast suppliers in the superyacht sailing yacht market worldwide: Rondal and Southern Spars.

Of course, there is perhaps a difference between investment from outside funds and consolidation under existing boating umbrella companies. Take Massimo Perotti of Sanlorenzo or the Beneteau family, for example. They’ve been involved in the industry for a long time and have a deep understanding of how the business works. Also, the leveraged debt side of private equity only works if you can scale up the business, and people forget or don’t realise that the boat industry is mainly manufacturing, and in fairly small numbers.

Yet for most people, the market choice will appear diverse and largely the same as before – much as it is with the modern car industry. Moreover, all the consolidation in the manufacturing, supplier and retail distribution sides of the business means that if you’re a small player, as a brand you’re going to get squeezed.

Conversely, the bulk of those consolidated brands do offer a more cost-effective solution and that passes on to the end client. It’s the same in the car industry. There are fewer automotive groups but we’re getting better value, not to mention continuing advances in technology and sustainable motoring. Perhaps that, then, is one of the key takeaways when it comes to brand value and consolidation.

Bringing things up to date, the COVID-19 pandemic has generated an unexpected bonus for the boating industry as consumers seek out ways to enjoy their leisure time without relying on airlines and hotels.

Short-term sales have been strong, yet the more prudent are looking ahead at what happens as the world stabilises.

Boat owners also have expectations derived from other parts of their lives and sustainability is a significant influence. To capitalise on this energy and to collectively work out whether we need a medium- or longer-term alternative to fibreglass, if it can’t be recycled, I believe it needs longer-term financing and larger groups in place.

Consolidation for sustainability is essential – and sustainability, increasingly, is the future of our leisure boating.

This article originally appeared in Ocean #94. To read more from this issue, click here

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