What's Next for Brunswick?
by Mr. Wizard
Mr. Wizard, a marine sorcerer and one of our regular readers, recently commented RBBI is becoming well known for supplying the latest coverage of breaking boating industry news. He volunteered to help us by supplying tomorrow's news today, just like he does for the TV show, Early Edition. I told him I'm allergic to cats and he offered to e-mail us an occasional column instead. His first effort is below.
By Mr. Wizard 5 August 1998Many magazines, periodicals, web sites and newsletters report boating industry news. That's a piece of cake. When is the last time you saw one of them predict the future? Predicting the future is tough, especially on a limited budget (it takes lots of boiling cauldrons full of frogs, bats, and hazardous chemicals.) I promise to do my best, and I also look forward to your input and feedback. Now, on to today's topic.
Looking at the other major players in the industry:
Major events have been happening "rapid fire" in the Brunswick Camp.
Is there some underlying purpose Brunswick is working toward, or being forced toward? They have spent (acquisitions) or lost ( $133 million lawsuit plus defense costs) a lot of money, and are having FTC (Federal Trade Commission) monopoly problems. If they were to sell off a significant portion of their boat company operations they could kill two birds with one stone. The FTC would leave them alone, and they would have cash to setup a cash reserve for the lawsuit and pay off some of their recent acquisitions. Is Brunswick preparing one of its two largest boat companies, US Marine and Sea Ray, ready for divesture?
Heat from the FTC investigation, loss of the Independent Boat Builders suit, and Peter Larson's (Brunswick CEO) strong desire to reduce dependence upon the marine industry are forces that could prompt a move of this nature.
Roger Patterson was recently pulled out of US Marine. His new assignment of "developing operating synergies among the company's marine organizations" sounds like a temporary one. Maybe he could be made available to run the new unit? or to be the major go between for the new owner and Brunswick?
Marine Max? They might want to buy Sea Ray, but my elves report not all is well in their camp. They are probably too busy trying to keep their own ship afloat to worry about it at this moment.
Yamaha is a possible suitor. They are a major builder in Asia and have a long standing relationship with Brunswick. It's certainly possible, but I think there is a better suitor that brings additional synergies to the table. Also, much of the Brunswick-Yamaha relationship was through David Jones who is no longer at Mercury.
Toyota is trying to enter the market. Their image of quality, excellence, and a "step above" fits exceptionally well with the Sea Ray product line. Besides the US ski boats just released, Toyota has been producing cabin cruisers in New Zealand for sale in Japan. This has given them some experience with the type of craft produced by Sea Ray. Many of Sea Ray's boats currently use "big block" engines and could continue to be powered by Mercury Marine while Toyota begins to develop a full marine engine line of their own.
After going on the acquisition binge, finding a spare $133 million or more to cover the Independent Boat Builders lawsuit could be difficult (they only showed $85.6 million in cash reserves). The case is going to be appealed, but typically they establish a cash reserve to cover the award.
Many boat companies have images that do not "mix" with Toyota. Inferior products, poor designs, bad reputations and the poor image of these companies would be very hard and expensive for Toyota to "turn around." Sea Ray portrays the image Toyota wants.
Sea Ray is the only very large opportunity of this nature. If they miss it, its gone and they are stuck with a large number of smaller companies with image problems.
Many boat companies have sold for a great deal more than their assets. The value of a business can be estimated in several ways. (1) the value of its assets, (2) the value of the cash flow it generates, (3) its annual sales. In many industries, companies trade for something near their annual sales. If they were making about 10% on sales, the new buyer would also be making about 10% return on his investment.
By far the most expensive component in a boat is the engine(s) and drive(s). Since these are somewhat passed through, it might not be fair to pay the full annual amount of annual sales for a boat company. At the extreme, its like making refrigerator magnets, buying refrigerators, installing your magnets, and then selling the assembly. There is a lot of cash changing hands due to the value of the refrigerator which you really had little to do with. Someone else could come along and do the same thing with minimal investment.
Looking at the MarineMax news clips and their prospectus, they claim to have had $234 million in sales in 1997 which was about 20% of all SeaRay new boat sales. That would put SeaRay new boat sales at about $1.17 billion. They may have had additional income from financing, service parts, etc but they are in the billion dollar range.
But, the same prospectus says their annual sales is in the range of 5% of Brunswick Marine Group sales. Brunswick marine sales in 1997 were $2.38 billion. This does not compute. MarineMax sales were more on the nature of 10% of Brunswick marine sales. I find it tough to believe Sea Ray represents about half of Brunswick marine sales (1.17find it tough to beliefind it tough to believe Sea Ray represents about half of Brunswick marine sales (I find it tough to believe Sea Ray represents about half of Brunswick marine sales (1.17 billion vs. 2.38 billion). U.S. Marine, Mercury Marine, Quicksilver and all the other boat companies make a considerable contribution to sales as well. However, much of Mercury Marine's sales are internally transferred to Brunswick boat companies. Bottom line, better have a billion $ or more before you belly up to the negotiation table.
Or perhaps they will read this column, get the idea and my prophecy will become self fulfilling?
Either way, Brunswick having a longstanding Japanese relationship (Yamaha), and Toyota having a major US presence should break down some of the cultural barriers of doing business. However, there are still a lot of skills involved in negotiating with the Japanese.
Until next time!
A reader suggested Brunswick might "loan" the money to Marine Max to allow them to purchase Sea Ray.
A reader summarized his views and some materials in this week's "Automotive News" on the Volvo situation.
"Volvo currently has no plans for any merger or sale of the company. Since the Renault deal fell through there has been a decision made to avoid any merger or acquisition. Volvo will instead do joint projects with partners around the world. ... I can see a future in which Volvo decides to concentrate solely on heavy trucks and sells off the marine division. I don't think there is any near term sale of Volvo to worry the Penta people."
"I really enjoyed the future of Brunswick article. It made so much sense wondered why I didn't think of it. Would be a good fit with Toyota and allow Brunswick to diversify out of boats. Time will tell. Keep up the good work."
A reader mentioned Japanese businesses (like Toyota) rarely acquire other companies. They tend to create alliances with them.
Wonderful article. As an industry follower and peripheral participant, such commentary keeps me closely tied to the industry. The speculation is fun too! Looking forward to more. Regarding confusing figures - Is it possible that Marine Max figures referred to retail sales $ vs. wholesale figures reported by SeaRay which would explain the ratio discrepancies in comparison to Brunswick sale figures.
Date: 10 Aug From: Tearpitz Newsgroups: rec.boats Subject: Re: What's next for Brunswick? Brunswick is probibly seeking out its next victim.Buy a boat company for its name,and lower the quaility.Great!
Date: Wed, 12 Aug 1998 From: fritz Newsgroups: rec.boats Subject: Re: What's next for Brunswick? (Tearpitz) wrote: > Brunswick is probably seeking out its next victim.Buy a boat > company for its name,and lower the quaility.Great! Isn't Brunswick (AMF)the same company that nearly destroyed Harley Davidson years ago??
Date: Thu, 13 Aug 1998 From: blue Newsgroups: rec.boats Subject: Re: What's next for Brunswick? fritz wrote: > Isn't Brunswick (AMF)the same company that nearly destroyed Harley Davidson years ago?? AMF is a competitor of Brunswick in Bowling equipment and lanes. Brunswick never owned Harley but AMF did. AMF's primary business is bowling. Brunswick's primary business is active living recreational sports. This includes; billiards, bowling, camping equipment, bicycles, fishing equipment, marine propulsion and boats. I'm probably missing a few. They used to own some defense suppliers but sold to concentrate on core products. Brunswick would have been a better fit with Harley because at least they have some engine manufacturing experience with mercury/mercruiser. AMF had no idea that they were sitting on a gold mine with Harley-Davidson. It is doubtful that Brunswick will buy any more boat companies. The boating business is very cyclical and when the economy suffers, boating suffers proportionately. They don't want to put too many eggs in one basket. Some in this newsgroup make brunswick out to be the evil empire. They wouldn't be number one in most of the industries they serve if they didn't sell people what they want. In the business world you either grow of die. Brunswick has chosen to grow and does so aggressively.
Date: Thu, 13 Aug 1998 From: LEngelb Newsgroups: rec.boats Subject: Re: What's next for Brunswick? Brunswick and AMF are two different companies. They are both in the bowling business. It was AMF that owned Harley Davidson.
Date: Thu, 13 Aug 1998 From: Gary Newsgroups: rec.boats Subject: Re: What's next for Brunswick? In 1995 Brunswick celebrated their 150th anniversary. That's a sign they've made some good long term decisions.
Date: Fri, 14 Aug 1998 From: blue Newsgroups: rec.boats Subject: Re: What's next for Brunswick? emercier wrote: > AMF wasn't sitting on a gold mine at the time Harley Davidson was sold. > Harley was getting killed by the imported big bikes from Japan. The > biggest thing that saved Harley was Ronald Reagan implementing > selective trade restrictions on 4/1/1983 that were so punative they > essentially eliminated the competition from Japan. They restrictions > were discriminatory, since they targeted Japan exports, and essentially > exempted the West German, British and Italian exports. There is an > excellent analysis of this at the cato.org site, check out > http://cato.org/pubs/pas/pa032.html Read and enjoyed the analysis. Too bad companies too often take the short view of running a business. Short term profits at the expense of long term viability. If I remember correctly, the tariff was lifted two years early because the market for Harley-Davidson motorcycles increased dramatically with the introduction of their Evolution engine. > blue wrote: >> Brunswick would have been a better fit with Harley because at >> least they have some engine manufacturing experience with >> mercury/mercruiser. AMF had no idea that they were sitting on >> a gold mine with Harley-Davidson.
Recent Brunswick Acquisitions
Dates are approximate American Camper 8 Mar 1996 Boston Whaler 31 May 1996 Roadmaster Bicycles and Flexible Flyer Sleds 6 Sep 1996 Igloo Coolers 3 Jan 1997 Hoppe 7 Mar 1997 Bell Sport's Mongoose Bicycles 28 Apr 1997 Life Fitness 9 Jul 1997 Hammer Strength Equipment 13 Nov 1997 DBA Bowling Products 20 Nov 1997 Parabody Exercise Equipment 2 Feb 1998
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