Sales and Acquisitions
Heavy activity is continuingin certain segments of the Marina and Boatyard Sales and Acquisitions marketas paradigms are shifting towards new corporate ownershipwhere decision-making and operationsare beingmandatedfrom afar. Well-funded groups referred to as “Consolidators” are swooping in to acquire highly profitable mega marinas (250 to 600 slips or more) and they are doing so with break-neck speed and efficiency. “Ideally”, they say, “we like to acquire marinas in bunches so we can allocate management costs among neighboring facilities and enjoy resultingeconomies that bring even more profitability to ourbottom line.” Accounting is usually handled through a central corporate office (most likely in a different State), buying power is increased for insurance, parts and equipmentand heavy branding along with more sterile operational protocols areadded to projectconsistency and brand recognition. What appear to be increasingly absent fromstandard ops arefacility maintenance, personal touches andthe good ole’ captain Quints who have always been there to dip up your shrimp, show off their tattoos and share old sailorstories with the kids.
Until recently the lower to mid-range marinas of three to ten million in value that typically throw off less profits overall and lower proportionate “class A” income streamsseem to have been spared. Most facilities in this classhave invested their time and resourceschasingmultiple income streams in order to maximize profitability. Wet slips, dry racks, blocked storage, restaurant leases and lift slips producethe type of repetitive income streams that investors are after. Those same investors rarely have much tolerance for service, boat sales, engine sales, parts, boat clubs, rentals, bait and fuel in their ROI (Return on Investment)criteria. These more intensive categories of marina operations requirea deeper level of knowledge and understanding, hard work, exceptional people skills and personal attention to customers and hence have not found favor with the Consolidators – yet. The day is coming, however,because as more and more acquisition firms enter the fray and compete to establish their own presence in the marina space, those high-endpurely “Class-A” acquisition opportunities are dwindling. With corporatemoney burning holes in so many pockets, investormandates aredriving theirfocus into shallower waters.
Dedicated folks who have been laboring to run a successful marina for so manyyears are often no match for the sophisticated financial modeling and deal-making strategies driving the acquisition process these days.The result is often manifest when deals close and Sellers leave real value on the table. Sellers should be paid – handsomely – for all the blood, sweat and tearsit took to envision, createand operate (with a personal passion) all they have there, and measures should be taken to ensure value is preserved amidst the fine print and often pervasivebuyer mentality. So, further to the positive state of today’sMarina and Boatyard S&A Market is the reality that a significantknowledge gap exists when it comes to valuations and financial sophistication, and it may not bode as well as it shouldifSellers engage in a transactionwithoutcompetent representation.
Thisgap conundrum weighs-in especially heavy in the distinctly uniqueacquisition marketinvolving Boatyards and Shipyards. These are labor-intensive environments with typically narrower margins and subtle yetwider gaps in value analysis. Operators understand that managingcustomers, technicians and craftsmen brings a unique set of challengesthat require deep understanding of the trades. Investors are more likely to dismiss criticalrealities in thesecategoriesand fail to grasp the value of asustainedand exclusive staff of craftsmen.It would not be unusual for a sizeable yard to claim over 1,000 years of combined experience among the 50 or 60 craftsmen that comprise their staff of experts. Those guys with their special hands-on talents ensure a successful yard that will remain steady for decades to come.
Some acquisition teams will try to shift the valuation model to their pricing advantage and argue that a labor force will bring increased risk thereby justifying a lower multiple of EBITDA or a higher cap rate. In many instances that logic is not sound.I don’t believe you can assign a numerical value to the team of craftsmen who work at any particular boatyard or marina facility, but the value of a work force is manifest (for good OR for bad) in a company’s 3-year history of sustained profitability.The inherent value of a top team will also increase the “sell-ability” of a heavy service yard over one that does not reach to that level.
What is discernable and impactful from both sides of the table in determiningnumeric components of value(beyond pure profitability) are costs ofdeferred maintenance that impactwork efficiencies and safety. So, if your Travelift finger piers arebadly cracking/spalding/deflecting, if powercords that feedthe docks are sun-dried/cracked anddrooping into the water, ifpilings are wobblingso that it is difficult to balance while walking or if a section of concrete seawall panels are caving into your basindue to prop-wash – fix them! Given the opportunity, Buyers will be heavy-handed at the deal table to assess costs ofrepair for thoseitems (they will say “replace”) and you can expect a substantial credit against yourpurchase price to follow.A Seller has to be careful, though, not to go too far with repair projects because that money is not typically reimbursedin the final deal price.In general terms, only necessary items that impact the operation andthose which are safety-related are projects that should be addressed.
Service yards often bring decades of well-oiled operational protocols, a huge customerlist, outstanding reputations and reliable profitability to the table that should not be diminished withchants of a reduced “Earnings Multiple”or large cap rate for service income.Barriers to entry (for new competitors) 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 reveals that over 20 miles of yachts are currently under construction around the world. The number of vessels is constantly and dramatically increasingbecause each of thosevessels must be serviced, maintained and repaired. Even in economic down-turnsmaintenance and repairs are necessary in order to preserve the functionality and value of a vessel. With that reality in their corner (and for many other reasons), Sellers should stick to their guns when buyers offer to purchase at prices that only work well for them.
The Sales and Acquisitions phenomenon taking place in the US is very active and growing.There hasnever been a time when marinas, boatyards and shipyards were in such high demand (a Seller’s Market). Transactions are closing every day as facilities change hands and old operators are replaced withthe new. Beyond the investor class of acquisition lions are many levels of very capable buyers who are also acquiringfacilities for reasons of their own. Those deals tend to be negotiated ona more level playing fieldbut the valuation challenge still remains.
As the industry moves forward to accommodate a rapidly expanding customer base of boat and yacht owners, marinasand boatyards are stepping up their game to provide new levels of sophistication and technologyfocused on providing high quality services and convenient access to the water. Prices are headed upward across the board as demand for the lifestyle increases and as ownership styles are settling in to the new normal. Corporate and privately-owned facilities are filling the various niches while retirement is becoming a reality for the original pioneers.Andsothe state of the Marina/Boatyard Industry regardingcurrent Sales and Acquisitions continues to be increasinglyoutstanding – withone simple caveat:
-Seller Be Wise –
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