Brunswick buys Navico

This includes Lowrance, Simrad, B&G and C-Map brands. Closing late this year.

Some interesting history. Alcor, a Swedish private equity firm created Navico by acquiring Simrad and Lowrance in 2006. Then in 2007, they acquired....hold on for this....Brunswick New Technologies. At the time this supposedly made them the largest supplier of marine electronics for recreational boats. Clearly since then Garmin has surpassed them.

Meanwhile Brunswick has emphasized Parts and Accessories to the point they are now 35% of their revenue and this could push P&A to over 40%.

I cannot imaging this is a good buy based on past earnings as even if EBITDA was $100 million, which I'd guess closer to half that, it would still be over 10 times. However, Brunswick could be banking on future EBITDA based on internal sales to their own boat lines. If they take $470 million sales with $100 million EBITDA to $750 million sales just on internal sales, then it could push EBITDA up to over $200 million as these are definitely high margin items.

I can't imagine this being the kind of numbers I would ever have considered but not a business or business approach I'm into or a purchase level I'm into and as you get larger, like Brunswick, it becomes much more difficult to place your money into businesses that will provide you top return. For $100-300k, you can buy all the businesses you want at 3 times EBITDA. At $100 million you're likely looking at 5 times EBITDA. At $1 billion you may well pay 10 times EBITDA as there are just fewer opportunities. Looking the other way around, a business earning $40-50k is willing to sell for $200k and cash out quickly, one earning $20 million is harder to bargain with and by the time you hit a business earning $50-100 million a year, their desire to sell, even if owned by private equity, just isn't that pressing.

Brunswick, as a public company, will have to report soon the impact they project on income.

One other factor. Brunswick's free cash flow from operations in 2020 was $629 million. They left the year with $587 million cash. Sometimes a company their size faces two choices. One is to spend the cash on acquisitions. The other choice is to be purchased by someone else with your own cash. It's risky to carry such high levels of cash. 2020 was a record year, putting them in that situation. You sit with such cash and vultures will descend and you may not be lucky enough as a public company to choose who you would like to buy you.

Also, all but Furuno, the smallest of the four, are owned by larger companies. Raymarine is only a modest part of Teledyne Flir, Marine Electronics a modest part of Garmin and now Brunswick and while the acquired company was relatively small, it is pretty much all marine electronics. Marine Electronics are definitely a small industry subset as you point out.

Easy to spend a little money but hard to spend a lot. Highly competitive buying large businesses and no one buying small businesses. I feel bad for small business owners hoping to cash out and finding it so difficult.

When you start offering the amounts private equity is offering now, then plenty of businesses that were not for sale become available. We still call them Godfather deals as making offers they can't refuse. If you're a public company you have either less flexibility because shareholders don't respond well to turning down offers well over market.

I imagine this Navico deal took a lot of negotiation over a long period of time with many twists and turns and dirty words like Teledyne and Garmin tossed around frequently.