Malibu boats planning to become a public company

[Razorskier1]

They filed with the SEC to go public. Trailing 12 month revenues of $177mm and net income of $23mm. Planning to offer $115mm in stock. Haven't read the filing yet so that's all I have for now.

[ForrestGump]

Had been only a matter of time. Horizon Holdings and Black Canyon Capital, the venture capital groups that saved Malibu from bankruptcy about 7 or 8 years, ago wanted out and had quietly offered it up for sale about 18 months ago. Getting no takers, the only way out is a public offering. Black Canyon typically provides equity investment in the $25-50M range so between them and Horizon, their equity is a sizable chunk.

[Razorskier1]

Agreed. Private equity guys don't have long time horizons. They need to buy stuff, fix it up, sell it and move on. That's how they make their money. The filing is an interesting read (if you're into that sort of thing). Just go to edgar.com and search for Malibu Boats. They don't have a date filed yet, so it is going to spill into next year before they do the investor roadshow and pricing. Ticker symbol is proposed to be MBUU.

[oldjeep]

Doesn't seem like the greatest investment considering how tied to the economy luxury items are.

[ForrestGump]

@oldjeep You would be surprised. While pleasure boating manufacturers took it on the chin during the economic downturn which started in 2008, the wakeboard and 3 event boat market did not fare as poorly. While numerous pleasure boat manufacturers went out of business, the ski boat big 4 weathered the storm. For comparison, Sea Ray(which was the largest pleasure boat manufacturer almost went bankrupt when they went from 16,000 units produced in 2009 to 6000 in 2010. My best friend is on one of the largest ski boat dealers in the country. People never really slowed down buying $90k+ boats. In 2010 alone, he sold 70 wakeboard boats and 70% of the people paid close to $100k cash. Even now, only around 35% finance.

[Razorskier1]

Big part of their business strategy is their focus on stealing sterndrive share. They have clearly been successful at that with the Wakesetter.

[jcamp]

Whoa ... http://www.sec.gov/Archives/edgar/data/1590976/000119312513473426/g621288g71f62.jpg

[ForrestGump]

The National Marine Marketing Assocation's 2012 statistical abstract shows essentially the same thing, along with values. At the high point in 2006, the average cost per boat was $43k. Now it's $68k.

 

 

[oldjeep]

Jeeze I'm way below average. The new boat we bought in 2005 cost $14K - and is apparently still worth 10-11K

[PBD]

We saw how being public worked out so well for Mastercraft.

[Razorskier1]

It will be worth watching. Being a public company puts pressure on one thing and one thing only -- growing revenues and earnings. Sometimes other things that were core to the culture of a company when they were private go out the window. I have no idea what will happen, but it will be interesting to see what changes at Malibu over the years.

[Texas6]

This is a soul sacrifice for no other reason than satisfying private equity. I like Malibu but it's a shame to see companies raise public money without the growth of the company and product being priority number one. It will be interesting to see how they spin this

[Ed_Obermeier]

...Being a public company puts pressure on one thing and one thing only -- growing revenues and earnings. Sometimes other things that were core to the culture of a company when they were private go out the window.

 

IMO that is exactly the problem with a lot of companies these days. The primary driver is the next quarterly report/profit margin with little/no regard to how that effects the long term. So things get done in the name of The Budget with little regard to the long term effects of short term view. And they're usually not positive things. Malibu is a relatively small company. Kill the culture, kill the spirit and you (probably) kill morale, what do you have left? How is that likely to affect the quality of the product? Thanks, but I think I'll pass.

[Zman]

What @Ed Obermeier said. Later it will be about about satisfying shareholders and greed. They have a good thing going, wish they could leave it alone....

[John Brooks]

Interesting that Drew Ross & Cory Pickos ski schools have gone away from Malibu recently, wonder if this is an indication of a change in their programs?

[jhughes]

I thought Malibu's big thing was that they were "employee owned"?

[ForrestGump]

Malibu hasn't been truly employee owned in 8 years.

[Razorskier1]

Don't jump the gun. Things could be fine. I think the risk is that as a public company they are pressed to grow, and growth isn't in the slalom market. It is likely to further accelerate their already in place business practice of focusing resources on v-drive, wake boats, and probably they will move into some variety of larger luxury boat. Those are growth markets, slalom skiing, not so much.

[LeSkiAvantTout]

Switching from private equity to quoted ownership is unlikely to make them a worse ski boat manufacturer, If anything they may be able to adopt a longer term horizon. At $23m net income on an average earnings multiple they'll be a $300-$400m mkt cap stock, ie not much more than a micro-cap. Typical small cap institutional manager will own them for long term capital appreciation not dividend payouts. I'll have a look at the filing.

[skiray]

I didn't comment the first day I saw this post. For once I tried to consider the potential scenarios and looked for the positive.

 

Malibu going public sucks and no good will come from it. I just hope it doesn't impact the book value of my TXI...

[XR6Hurricane]

Going public will send them down the road of putting the accountants in charge of all decisions. I'll go out on a limb and predict that they will be building I/Os within 5 years.

[escmanaze]

Wow, what a bummer. Right at a time where I really think that the TXI would be the next boat I would own (and this coming from a current very satisfied CC owner) and suddenly the 2018 TXI doesn't look so attractive after the publicly traded demons have run through it. Hopefully by then the 200 will figure out it's gas consumption issues.

[Horton]

I don't know if going public is a good thing or a bad thing but a few thoughts....

 

Lets say the slalom boat market = 10% of Malibu's business (I have no idea what the real # is). Who in their right mind ignores 10% of their business? Diversification is never a bad thing.

 

Slalom boats largely go to the promo team who basically pay wholesale for the boats and reorder every year and at the same time of year. Year after year. Promo slalom boats deliver almost guaranteed cash flow year after year.

 

Factories make as much on a slalom boat that goes to a promo guy as if it goes to a dealer and the promo guy pays cash. I am not sure if dealers always pay cash. ( @ShaneH may shed light on this if he is sober)

 

In other words if was was an investor I think the case can be made to stay on top of the slalom market. I am making a lot of assumptions but those of you who think going public is terrible are also making assumptions.

 

[Wish]

Totally going off a bad memory here but wasn't MC acquired/controlled by Coleman (camping company) and then they changed some management at MC? Shortly after, MC came out with some not so good boats??. 1995-.... ?? I may be way off. I guess my worry is an entity purchasing a controlling share and placing new management (theirs) in order to "protect" their investment.

[Horton]

@Wish I do not see how ownership explains a bad design. I know there was that one famous hull that everyone complained about but I would have to guess that was simply a design error. I am pretty sure that boat design is not super easy.

[skiray]

@Horton I agree we are all making assumptions here and I trust your perspective. You have a line of sight into the industry that I don't have.

 

@Wish my memory is as bad as anyone's but what I remember is the 99 PS 190 was a total disaster due to a lack of testing. (Well, I thought so when we parked one in the weeds.) They cut corners to reduce R&D costs. Totally opposite approach on the 2014. Totally different outcome.

 

I think it's fair to say profit was considered in the 2014 MC, but I think they started with the design and the intent on making the best boat. Eventually, they figured out how much the boat would cost. A public company, will do a market penetration study and calculate how much time and money they can put into it before they start.

 

My final assumption / concern - a public Malibu will spend more time discussing if they want to produce a direct drive than they will working to make it better.

[ForrestGump]

@Horton The manufacturers require boats to be paid in full before they'll ship a boat. Dealers almost always pay via a floor planning company, which provides the short term financing while the boat sits on a dealer lot. Next to no dealerships have the funding to pay for boats outright. Rarely would a manufacturer front a boat to a dealer on payment terms. I know of one very large dealer who lost their floor planning and the manufacturer was forced to self finance the boats to the dealer in order to keep him in boats. But that is very rare.

 

Where manufacturers really differ is how they report sales to the public. Some, such as Nautique, report a boat as sold when it leaves the factory, even if it sits on a dealer lot for 10 months. Others, such as Mastercraft, report it sold when it's actually sold to the customer. Now that Malibu will be a public company, how they report things such as that may change.

[ForrestGump]

@Wish Your timeline is bit off. MC was purchased by Coleman in 1984 and then transferred into the Meridian Sports umbrella when Coleman was purchased in 1989. So the prime time for them(93-97 Pro Stars) was under public ownership. Now, their ownership name changed a couple of times during that 15 years but they were still owned by Coleman or the company that purchased Coleman during that time. The management turned over in 1998, AFTER the rush to develop the 98 Pro Star(which we all know was a terrible boat). One of the reasons for the rush on the boat with no testing and the management turnover was a huge write down on a poor investment MC made in the early 90s in a company that made PWC's. It wasn't until 2000 that Scott Crutchfield, Randy Dorton, and some other MC execs negotiated the management buyout from Meridian/Coleman.

[Wish]

@ShaneH Thanks for the history lesson. I love leaning this stuff. Make's more sense now. And was surprised that MC was sold way back in 84. Interesting..

[bigtallweed]

@ShaneH is that the same Randy Dorton that built motors for Hedrick motor sports and was killed in a plain crash going to Martinsville?

[bigtallweed]

That should say Hendrick. Sometimes I hate spell check

[escmanaze]

I think @Skiray hit it right on the head with his final assumption. I mention the 2018 TXI not being really impressive, and shoot, maybe the 2022 TXI doesn't even exist? Obviously I hope I'm wrong and I hope they can find the business reasons to keep making the boat, and improving it as well, but I won't be surprised either if it quickly becomes all surf boats all the time.

[Ed_Obermeier]

...but I won't be surprised either if it quickly becomes all surf boats all the time.

 

Or wakeboard boats. Works for Supra. Of course at the opposite end of the spectrum is Centurion.

[Razorskier1]

If it weren't for the wake boat market Malibu, Mastercraft, and CC would all be out of business already. Going public will accelerate the focus on the hottest selling, fastest growing segment of the market. If they can do that while at the same time continuing to innovate in slalom, that would be great. I just know from my history in the institutional investment business that the pressure for growth and profits once you become a public company can take a company away from slower growing, less profitable segments (slalom). Don't know if it will or will not impact Malibu. Just worth watching what happens after they make the move.

[A_B]

My friends that have worked for companies after Private Equity purchases have all hated it. The focus was clearly turn and burn and make their target % ROI. Maybe a stock offering could be viewed as just turning the equity over to a diluted power base, and as long as the key Managers stay on to run it, the company might be better off in the long run.

[gregy]

Last company I was with, majority owner died. Family sold it to a investment group who put there own executives in place and took it public. Mismanagement and lack of focus, key people left, place shut the doors about five years later

[XR6Hurricane]

The topic always seems to come up that the manufacturers would all be out of business if it weren't for the wakeboard boat market. I disagree. For the public, I think wakeboarding was simply a departure from the traditional towed sport of skiing and stole market share from skiing. If wakeboarding had never come about, skiing would not have become as unpopular as it is today, and the boat builders would simply be building different boats. It's just like vehicles - people wouldn't demand large SUVs if they had never been built. Corporations don't respond to market "needs" as much as the analysts would have you believe. They come out with something and tell the people they need it - and then name their price.

[ForrestGump]

Going public or working for a public company is not always a bad thing. It all depends on the management put in place. We hear about the bad times, but there are thousands of examples of companies taken public or companies purchased by public companies that have gone on to be industry leaders. My company was purchased by a public company two years ago and it's allowed us the financial backing to go out and expand our business with little effect on how we do business. It's wayyyyyyy too early to be saying the '18 TXi won't be as good as it is today.

[A_B]

Well, CC was bought out. Was this good or bad? They had a strong and loyal customer base, so it is doubtful any new management would want to screw that up.

Some interesting Malibu info:

 

http://www.sec.gov/Archives/edgar/data/1590976/000119312513473426/d621288ds1.htm

[A_B]

@Rodecon ?

[Ed_Obermeier]

@AB dude seems to like to pass out a disproportionate number of dislikes for some reason.

[rodecon]

Oops, sorry @AB......fat fingers on a small screen! I think I fixed it

[rodecon]

Good lord! I just noticed I did it to @shaneh as well!!! Sorry guys, I gotta pay more attention where

[A_B]

No problem. I know I say what's on my mind a little too much sometimes, at least that's what my wife says.

 

@Horton, we see a lot of dislikes that were unintentional, maybe move it to the left on the icon row?

[Horton]

@ab not a bad idea no I can't

[Zman]

When Malibu goes public, I wish Malibu owners would have access to the IPO.

[ForrestGump]

All they need is to open a brokerage account somewhere.

[oldjeep]

@ShaneH - not exactly. The average retail investor has 0 access to the shares at IPO time.

[Zman]

What @oldjeep said. I have a brokerage account, but access to IPO's are limited to the ultra rich, or a few privileged insiders. Just thought it would be cool if those who own Malibu boats had some access to the IPO shares when the company goes public. After all, Malibu exists today because of those who have purchased their product. And, if I made a little money off the IPO, it likely goes back to them when I upgrade to a new model sooner.

[Horton]

@Zman I seriously doubt that would happen but I must say it is a interesting idea.