Brunswick to Sell SEA RAY

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jimh
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Brunswick to Sell SEA RAY

Postby jimh » Wed Dec 06, 2017 10:23 am

This is not an April Fool's article; this is news. Here is the press release, verbatim:

    METTAWA, Ill. - Dec. 5, 2017 - Brunswick Corporation (NYSE: BC) today announced it intends to sell Sea Ray, one of the 15 brands that comprise the Brunswick Boat Group. Lazard's middle market advisory group is acting as Brunswick's investment banker for this transaction, which is expected to be completed in the first half of 2018.

    "Our marine strategy is focused on developing, manufacturing and distributing market-leading products to recreational and commercial marine consumers through our portfolio of engine, boat and parts and accessories businesses," Brunswick Chairman and Chief Executive Officer Mark Schwabero explained. "This decision was made after careful consideration, and reflects the evolving contribution that the Sea Ray brand has made to our marine portfolio.

    "Our remaining brands will continue to be important elements of a robust, balanced marine business, with our boat portfolio serving healthy, expanding market segments," Schwabero explained. "This more focused strategy will provide the best opportunities for growth and will complement our other marine offerings, including engines, parts and accessories. This shift will also improve our risk and margin profile and is consistent with our commitment to drive shareholder value.

    "We believe that the Sea Ray business, through its leading brand and exciting product line, offers attractive value creation opportunities to a new owner," Schwabero added. "Sea Ray is an iconic brand that is rich with history, with a reputation for craftsmanship, quality and styling. Sea Ray's manufacturing facilities are among the most advanced in the marine industry, with talented and dedicated workforces."

    During the sale process, "we will continue to diligently manage Sea Ray by executing its business and product plans in support of our dealers and customers," Schwabero concluded.

    Brunswick will report the results of Sea Ray, as well as its Meridian boat brand, as discontinued operations for accounting purposes going forward. Finally, Brunswick is reaffirming its recent EPS guidance and target ranges for 2017, 2018 and the 2020 plan.

    Conference call scheduled today
    The Company will hold a conference call today about the Sea Ray transaction at 5 p.m. EST Dec. 5, 2017, hosted by Mark D. Schwabero, chairman and chief executive officer, William L. Metzger, senior vice president and chief financial officer, and Ryan M. Gwillim, vice president - investor relations.

    Security analysts and investors wishing to participate via telephone should call 888-771-4371 (passcode: Brunswick 2017). Callers outside of North America should call 847-585-4405 (passcode: Brunswick 2017) to be connected. These numbers can be accessed 15 minutes before the call begins, as well as during the call.

    To listen via the Internet, go to ir.brunswick.com. Please go to the website at least 15 minutes before the call to register, download and install any needed audio software.

    A replay of the conference call will be available through midnight EST Dec. 13, 2017, by calling 888-843-7419 or international dial 630-652-3042 (passcode: 4610 9631#). The replay also will be available at http://www.brunswick.com.

All I can say at this moment is: WHOA!

jimh
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Re: Brunswick to Sell SEARAY

Postby jimh » Wed Dec 06, 2017 10:46 am

At the Brunswick website for investors, you can download the slides presented regarding the SEARAY sales conference call. The most interesting slide is one that shows the Percent of Brunswick's total revenue from various business segments, in three years: 2007, 2017, and 2020 (projection).

In 2007:
Inboard and Sterndrive Boats and Engines = 38-percent
Outboard Boats and Engines = 29-percent

In 2017
Inboard and Sterndrive Boats and Engines = 14-percent
Outboard Boats and Engines = 37-percent

Projected 2020
Inboard and Sterndrive Boats and Engines = 5-percent
Outboard Boats and Engines = 41-percent

The cyclical nature of the boat and engine market is also emphasized. Certainly the market for larger inboard and sterndrive boats has been in decline. Apparently Brunswick wants to reduce their investment in that segment, and selling SEARAY will make that happen.

Brunswick also projects that Engine Parts & Accessories (another business segment) will grow in 2020 to become 30-percent of total corporate revenue, rising from a modest 15-percent in 2007.

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Re: Brunswick to Sell SEARAY

Postby Jefecinco » Wed Dec 06, 2017 11:09 am

Jim--your post discussing declining inboard and sterndrive boats and engines is very interesting. Why the decline given the increase (so I have heard) in large boat sales in the boating industry overall ?

Has SeaRay lost share in the segment or is the decline industry wide?

Have EPA regulations also have had any bearing on the decision to sell SeaRay?

A large majority of SeaRay boats are propelled by Mercruiser gasoline-engine-driven sterndrives. Virtually all Mercruiser gasoline engines are manufactured by General Motors (GM). So far GM has been able to leverage technology in order to meet increasingly stringent regulations. However, due to fuel economy rating requirements engine manufacturers are moving to four cylinder turbocharged engines with one or more catalytic converters in the exhaust systems.

The combination of low displacement, high RPM, and very high exhaust temperature engines present problems for boat designers. When engines make highest torque at relatively low RPM and highest horsepower at relatively high RPM while emitting high exhaust temperatures it may be difficult to cool engine spaces and select gear ratios and propellers that will perform at levels desired by boat owners while maintaining the market share required for profitability.
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Re: Brunswick to Sell SEARAY

Postby jimh » Wed Dec 06, 2017 1:26 pm

I think the decline of larger inboard engine boats is not related in any way to engine temperatures during operation or any other engine parameter. I think the decline is related to a general trend to downsize from 45-foot-or-larger cabin cruiser type boats to smaller, more agile, faster, more purpose-designed boats.

The general boat owner is really most likely to be interested in fishing, not cruising in style from port to port on his big SEARAY boat.

Also the price of 45-foot SEARAY boats is now well beyond the reach of anyone except the one-percenters. There was a time when a lot of the people working in my industry at my level owned things like airplanes and 40-foot boats, but not any more. You need a lot more disposable income to own airplanes and 40-footers these days. I remember when I started working back in the 1970's one of the other engineers owned a Ferrari--albeit a small one and he was rebuilding it from a wreck. But nobody I work with now owns any kind of car like a Ferrari--most of the middle-age people are leasing a modest sedan or small SUV. Forty-foot-boat ownership is not in their orbit.

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Re: Brunswick to Sell SEARAY

Postby frontier » Wed Dec 06, 2017 1:58 pm

Many SeaRay dealers are also Boston Whaler dealers because they have to be because of the Brunswick connection. I wonder if this sale of SeaRay will pave the way back to more local, family-owned Boston Whaler dealerships--with actual product knowledge in the sales and (especially) the parts departments.

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Re: Brunswick to Sell SEARAY

Postby Phil T » Wed Dec 06, 2017 5:05 pm

My non-expert opinion for the decrease of inboard engines is due to the increase in horsepower for outboards.

Ten years ago could you buy a 300 or 350 hp outboard?
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Re: Brunswick to Sell SEARAY

Postby Ridge Runner » Wed Dec 06, 2017 5:21 pm

Excerpts from a security analysts:

"Brunswick bought Sea Ray in November,1986 for $350 million. At that time Sea Ray had annual sales ~$400M and a production of ~28,000 units a year with ~4,500 employees. In 2016, it is estimated that fewer than 2,500 Sea Rays were sold in the U.S and that Sea Ray has been operating at a loss.

Macro-Trends Tell the Tale

The general public has always had a misconception of how many new boats are actually sold in the U.S. In 2000, there were 342,000 new boats sold in the U.S. – outboard boats of all kinds, inboard ski/wake boats, inboard cruisers, and sterndrive boats. Today, new boat sales, in the same categories, total less than half that number.

Hardest hit has been the sterndrive category – Sea Ray’s strong suit -- where industry-wide sales were 78,000 in 2000 and are fewer than 20,000 today. And, sales of inboard-powered cruisers are about 70% of what it was just 17 years ago. Both of these categories were Sea Ray’s bread and butter, and the markets had shrunk to a shadow of its former size."
Last edited by Ridge Runner on Wed Dec 06, 2017 9:45 pm, edited 1 time in total.
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Re: Brunswick to Sell SEARAY

Postby TransFueler » Wed Dec 06, 2017 6:41 pm

I'm guessing that not many boat buyers in the $500,000-and-up range want a SeaRay. They prefer a brand with more panache and prestige.

Interesting: most good ski boats are now in the $150,000 to $200,000 range.
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Re: Brunswick to Sell SEARAY

Postby jimh » Wed Dec 06, 2017 9:58 pm

Perhaps Brunswick already has a buyer ready to take on SEARAY. If that division has been operating at a loss, as suggested above, you wouldn't think the sale price would be very strong. And particularly if Brunswick just announce they are going to sell without having a ready-made buyer waiting. A public announcement that they want to sell a big product division like SEARAY is not likely to drive the value of SEARAY higher. Maybe another shoe will drop in a relatively short time, and the buyer will be named.

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Re: Brunswick to Sell SEARAY

Postby Jefecinco » Thu Dec 07, 2017 9:51 am

It's difficult to imagine any buyer keeping the large yacht portion of SeaRay operating. Based on the sales trends we've seen smaller boats with outboard power continue to do well enough. We owned a SeaRay from 1978 to 1999. In the late seventies and for most of the eighties SeaRay concentrated on boats between 22 and 30 feet using stern drives in boats below 30 feet and inboards in the larger boats. It would be easy to convert the 30 foot and below family to use outboard engines. Our 24 foot cruiser was powered with a 260 Mercruiser and we were pleased with the performance. That boat would have done very well with a modern four stroke cycle 250 HP outboard engine.

[SeaRay boat] quality was not up to Boston Whaler level but--with a lot of preventive maintenance--lasted well enough. When we bought our first Boston Whaler in 1999 we donated our 21-year-old SeaRay to the local volunteer fire department for their annual fundraising auction. I believe it got them about $5,000. We bought the boat new for $16,000 so it didn't do too badly.
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Re: Brunswick to Sell SEARAY

Postby jimh » Fri Dec 15, 2017 10:12 am

Selling businesses that do not make any money can be difficult. Several years ago NEWSWEEK magazine--once an extremely popular and profitable weekly news magazine--was sold for $1--yes, one dollar--with the proviso that the buyer wouldn't fire any of the staff for at least one year.

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Re: Brunswick to Sell SEARAY

Postby ConB » Sat Dec 16, 2017 6:07 pm

According to Matt Plunkett's book "Unsinkable" Whaler is still using Searay's 5 axis router to make the plugs for new molds.

How will use of that tooling play out? Joint custody?

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Re: Brunswick to Sell SEARAY

Postby Jefecinco » Sat Dec 16, 2017 6:42 pm

[The five-axis router used to make molds for Boston Whaler boats will be] [p]ossibly (probably?) not part of the SeaRay package. Let the new owner worry about building new molds.
Butch

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Re: Brunswick to Sell SEARAY

Postby jimh » Sat Feb 10, 2018 10:34 am

There is a byline article in the March 2018 POWER & MOTORYACHT magazine on page 42: "SIGHTLINES: Goliath: A Shift in the Sands," by Michael Peters. The author is a yacht designer, and apparently quite a successful one. See

http://www.mpyd.net/

Peters has some anecdotes to tell about the earliest days of SEARAY, before Brunswick ownership, and some stories about after Brunswick ownership. He comments:

However large and successful the Sea Ray brand was, I always thought of it as the boating version of Cadillac. It was made for middle America as a non-showy statement of success, a brand that no one could get too excited about, but no one would object to either. All the boats were the same color and had a strong family resemblance that any boater could recognize. They were a safe choice with a huge following, albeit it a bit boring. A boat with a monotone.


(The comment about "monotone" refers to an earlier anecdote in the article which describes the head of design of Sea Ray as always talking in a monotone voice at meetings.)

He concludes:

As we all know by now, Brunswick has put Sea Ray up for sale after several years of operating at a loss; boating trends have changed with the rising popularity of large outboards, while the stern-drive and inboard-powered cruiser segment is in steady decline. As a result, the Goliath of the boatbuilding industry was hit right between the eyes with a pebble from Brunswick's own backyard.


I like the David and Goliath metaphor, and the pebble a Mercury outboard on a Boston Whaler.

The comparison to Cadillac is interesting. As anyone who follows automobiles knows, Cadillac has massively changed from its old brand identity. It no longer makes giant sedans with tail fins. It has made some rather cool cars. It introduced radical styling changes for cars with its angular look. When prototype Cadillac cars were used in filming THE MATRIX RELOADED, they were cast because they "fit seamlessly into the innovative, hyper-stylized world of the Matrix."

(See Cadillac CTS and Escalade EXT Make Film History In 'The Matrix Reloaded for more about Cadillac cars in THE MATRIX.)

I don't think you'd cast a Sea Ray as a hyper-stylized boat from some future world.

Also, if you want a not-too-showy statement of success, you drove a Buick or Oldsmobile, not a Cadillac. When John Engler was governor of Michigan, it was frequently cited that he did not use a chauffeured limousine, but instead drove himself to various functions in his own vehicle, an Oldsmobile. The car brand was always mentioned, to get the proper image and connotation. If Engler had driven a Cadillac, the message would have been much different.

A very successful industrial salesman I knew always drove a Buick. He told me if he drove Cadillac his customer's would think he was making too much money from them.