YARD UPDATE '08: Bavaria Yachtbau...

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Yard Updates

Bain Capital and a more market-driven operation.

JANUARY 2008

The past year has certainly been a challenging one for Bavaria Yachtbau. The Gebelstadt-based sail and motorboat builder has had to adjust to a few major changes since it was sold to private-equity firm Bain Capital early last summer. You will recall Bain Capital acquired the majority of the shares from Elfriede Herrmann, wife of the retiring managing director Winfried Herrmann (65), who founded the yard in ’78, and Josef Meltl (69), a longstanding Bavaria dealer. The deal is believed to have valued the business at an incredible €1.3-€1.4 billion or so.
All the indications are that the sellers couldn’t have timed their exit much better. They sold at the optimum time — not necessarily at the peak as regards boat demand, but certainly at a distinct peak as regards the investment market. Such an eye-wateringly high price was getting on for five times the company’s annual turnover and the EBITDA (earnings before interest, tax, depreciation and amortisation) multiple was in excess of 16. Such multiples would have been unthinkable just a few weeks after the deal concluded, as that’s when financial markets around the world began to falter; the ‘sub-prime’ mortgage crisis in the USA was one of the first sectors to hit the headlines. And, ever since, things have got steadily worse for the investment banking industry. The availability of debt has just got tougher and tougher. It has been suggested that multiples of five rather than 16 would be more realistic in the current climate, which means Bavaria was by any stretch of the imagine massively over-valued.
There’s no doubt it will have all been excruciatingly painful for Bain Capital, a private-equity operation since the mid ‘80s which incidentally is also involved with a 50 per cent of the Bombardier Recreational Products (BRP) — one of the world's largest producers of PWCs, sportboats and outboard motors, but one also unlikely to be delivering the sort of growth expected of such funds at the moment owing to the ailing North American small-boat business that it will no doubt rely heavily upon.

'Bain Capital probably spent a little over €300 million of its own on Bavaria, but its backers, investment banks Goldman Sachs and Dresdner Kleinwort, are believed to have pumped in some €900 million between them...' 

And Bain Capital is not the only one regretting that its Bavaria deal went through when it did. Bain Capital probably spent a little over €300 million of its own on Bavaria, but its backers, investment banks Goldman Sachs and Dresdner Kleinwort, are believed to have pumped in some €900 million between them. Indeed Goldman Sachs was so keen to reduce its exposure recently that it tried to offload €100 million of its ‘senior debt’ burden in Bavaria by offering to writing off 35 cents in the euro.
The sale of Bavaria has certainly had a big impact on the operation’s management team. Immediately on completion of the deal, founder and driving force Winfried Herrmann stood down from the day-to-day management of the company, although his family is still said to retain a token shareholding. Bavaria’s general manager Rudolf Müller and sales manager Mike Reuer remain with the business, but a new CEO, COO and CFO have all been appointed over them during the past year.
The past year has also seen an end for the moment of the company’s rapid grow, which will be yet another blow to its new owners.
Yet, of course, the company still has a great deal going for it. It is still the world’s second-largest sailboat and Europe’s fifth-largest production boatbuilder. And its sales for ‘06/07 were far from bad. They ended up at around €285 million, roughly €200 million on the sale of some 2,600 sailboats and €85 million on the sale of some 800 motorboats, according to the company’s sales manager Mike Reuer. But the steep growth curve seems to have evaporated. The top-line growth for the period was just under six per cent up on the previous period, much less than the average growth rates of the past decade, made possible remember by its previous owner’s its relentless pursuit of automotive-style production methods and a careful check on costs, which combined to allow seriously low pricing. Indeed Bavaria’s plant is far more automated than any other sailboat builder in the world. Its approach has been similar to that adopted by Henry Ford, who said of his old Model-T that it came in ‘any colour you like so long as it’s black’. Regardless of whether we’re talking power or sail, Bavarias are all white with blue accents and their interiors are mahogany.

'The whole operation only employs 670 people, which means it generates an industry-beating €448,000 or so per employee...'

Presently Bavaria is delivering around 10 sailboats from just two extremely long production lines and between somewhere between five and six motorboats a day from just one line. Those speeds indicate it is slowing up on its sailboat output and an upping of its motorboat activity. Around 12 months ago it was operating its sailboat lines at 14-15 sailboats a day, while delivering four to five motorboats a day.
The whole operation only employs 670 people, which means it generates an industry-beating €448,000 or so per employee, and so flat is its corporate structure that there are only around 30-35 people in its administration departments. Overall, its cost of labour as a percentage of turnover is now under 10 per cent, by far the best in the boatbuilding industry.
The Bavaria-branded sailing cruiser range currently spans 9.5-15m (31-50ft). The line-up includes seven aft-cockpit ‘Cruiser’ models — the 31, 34, 38, 40, 42, 46 and 50 — plus towards the end of summer ’06 it added to them with a range of three new-style ‘Vision’ models — the 40, 44 and 50 – all of which were recently facelifted as the concept of deck-saloon exterior lines and conventional main saloons with no view out had not been as well-received as originally hoped.
On the power side, however, Bavaria’s BMB-branded motorboat portfolio now includes around 10 or so models based on six hulls ranging in size from 8.2m (27ft) up to 12.8m (42ft). A mix or open and hardtop designs, they are the 27, 30, 32, 35, 38 and 42. But Bavaria still says it wants to eventually develop a range of bigger power models, including flybridge designs, but for the time such plans have been laid to one side. Such moves would require a second motorboat production line.
There are no declared plans for Bavaria to build smaller or bigger sailboats either. To go bigger would require a third sailboat line and really once above 16m (50ft) or so the market becomes much less price driven and less of a fit with Bavaria’s positioning. It could conceivably build up to 17m (52ft) on the existing two sailboat lines, but no larger.
“As to the year ahead, we still remain absolutely confident,” says Mike Reuer. “We’re still working on our longer term development strategy, so there is not too much to tell at the moment… But as far as we’re concerned there are two big levers for future growth — product development and dealer coverage…”
As regards the geography, the ‘white spots’ on the dealer map are key, he says. “For instance, we see plenty of potential for power and sail in the Asia-Pacific Zone… There is now marina development in Korea and Japan is starting to take motorboats from us as well as sailboats, which it has done for some time… And recently appointed Chinese dealers are starting to move motorboats… Australia has been a very healthy sail market for us for sometime, but now it is also starting to take motorboats too. And we see big potential in the Middle East for power…”
In all Bavaria has over 85 sailboat dealers and 45 motorboat dealers around the world. And its exports now account for consistent 85 per cent of its total turnover.
The best sail markets at the moment are Spain, Norway and the UK, despite the hiccup there last summer with its then importer Peters PLC going bust. The UK is currently good for around 140-150 Bavaria sailboats a year, whereas at units peak four years ago it was taking near 200. Also still doing well are Germany, Italy, France and Holland… North America is flat just now for obvious reasons; Bavaria only sells around 100 boats a year there at the moment.
Charter business is still very important for the Bavaria brand. It currently accounts for no more than 25 per cent of its sailboat sales.
As for the BMB power business, the best markets are currently Italy, Spain, Norway, France, the UK and a slowly improving Germany.
As for product development, the past the company has certainly been very production focused. “But in the future I can tell you we’re planning to be much more market driven,” says Reuer.

© Phil Draper