Discussion in 'General Yachting Discussion' started by olderboater, Jun 24, 2021.
This includes Lowrance, Simrad, B&G and C-Map brands. Closing late this year.
June 24 (Reuters) - U.S. boat maker Brunswick Corp BC.N on Thursday agreed to buy Norway-based marine electronics and sensor company Navico for $1.05 billion, as its looks to strengthen its presence in powerboat and sailing markets.
Navico offers a range of products, including multi-function displays, fish finders, autopilots, sonars and radars, under brands such as Lowrance, Simrad, B&G and C-MAP, Brunswick said.
Navico, which posted revenue of about $470 million for 12 months ended May 31, is co-owned by investment fund Altor Fund IV and Goldman Sachs Asset Management.
Following the closure of the deal in the second half of 2021, the company will be a part of Brunswick's parts and accessories business, which accounted for about $1.5 billion, or 35%, of its 2020 revenue.
Just great - there goes product support for my Simrad suite of electronics. Sure hope I'm wrong on this.
Brunswick Smart Crap (no relation) has been using the simrad screens for a few years now. The better Merc techs know these screens better than Simrad.
> 2.2 x revenue is not a bargain basement price ... tough to make a decent return on investment at this price level
I never really understood looking at revenue. The multiple paid on EBITDA or even better, free cash flow, is a much better indicator.
Very true - but no EBIT, EBITDA or CF reported. So just assuming industry average profitability.
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.
Even though it may be a high multiple, it underscores how small the marine electronics business is. One of the big 4 is only worth about $1B, another reason they don’t innovate at the same pace as Apple.
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.
No surprise they had to pay a generous multiple of EBITDA. One of my sons is a partner in a small private equity firm, and he tells me here is an ocean of money chasing deals. He said deals are being bought at ludicrous prices by big private equity outfits, just because there is so little for sale now.
A massive flood of SPAC's that have gone public are exacerbating the situation, with hundreds of SPAC's facing a two year time clock to get a deal done or they have to return investor cash. So they are buying anything and everything at any price just to get a deal done.
I strongly suspect all this will not end well, with many deals going sour, but for now it is a great time to be the owner of a private company looking to sell.
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.