so Bavaria are to be sold

[Emjaytoo]

Perhaps we might see a major expansion with new capital and Bavaria totally dominate the AWB market. Surely PE companies are out to make money and whilst thet might strip the assets of stagnant companies, the alternative is to aquire companies with potential to grow and dominate their markets. Bavaria have a very successful product and I'm sure they could sell 7000 units a year if they could build them.

Enter stage left - The PE Company with lots of cash!

 

[asj1]

P/E doesn;t always get it right, there were two sides to the negotiatioin and quite possibly the current owners think they are selling at the top of the market, or at least the current market cycle.

 

[Birdseye]

[ QUOTE ]
What Bav needs is a decent brand so I'd expect to see an acquisition of a 'premium name' to be folded into the the existing operation.

[/ QUOTE ]

You mean like Hanse have bought Moody?

I doubt the asset stripping bit - you cant strip assets on the Continent in the way that you can over here, not least because you cant easily fire people. maybe it will be like that other private equity deal - Ducati. They have certainly prospered from good management, Texas Pacific in their case.

 

[Phoenix of Hamble]

Probably quite significant savings to be made in other ways than asset stripping....

Running a dealer network, finance function, HR, legal team, etc etc all cost significant money, and there will surely be scope for cost cutting here.... further more, they might be able to squeeze another percent or two out of their suppliers for even bigger orders....

Lets face it, Bavaria have already driven the entry level price down, and if they could take a further 10% off their list price, for say 2 or 3 years, then they could really really seriously hurt the competition..... then maybe 3,500 boats becomes 7,000, and then with plenty of opportunity to creep the margins back up, the valuation starts to look very much more appealing.... whatever the plan... PE firms will have a 2or 3 year strategy in mind max IME....

 

[Norman_E]

The trouble is, there are also some very disgruntled Bavaria owners. Look on the PBO forum and you will find one with some pretty serious problems. I notice your own boat is a 38 Ocean. The centre cockpit Bavarias like yours are no longer made, but cost a bit more when new than the aft cockpit models. The difference was partly one of economies of scale, but the Ocean models always looked to me to be of a higher standard than others. The problem of boats which comply with the EU standards to achieve RCD class A but are not really "blue water" boats in terms of their standard of construction is not limited to Bavarias. My own 9 year old Jeanneau is better built than some of the newer ones, and this is a direct result of cost cutting by volume manufacturers trying to compete on price with Bavaria. This was confirmed to me by the comment of the head of a charter company who said that he fears that when he has to sell the most recent boats they will be harder to sell than the previous generation of boats because they will not have stood up so well to the rigours of charter use.

It is my hope that the new owners of Bavaria will recognise that their best interests lie in enhancing the brand image, and that aiming to be the lowest price supplier per foot of boat is the wrong course to take if the end result is a reputation for quality problems, and denial of them.

 

[Pinnacle]

Neil - agree entirely.

 

[Phoenix of Hamble]

I worked in the management team for a decent sized company that was acquired under a PE deal...

Naturally we took representation from the investor onto the board.... and they started talking about things they described as 'lights out' campaigns against our competitors.... a wholly more aggressive approach than the one we had been taking....

And all about creating rapid opportunities to grow revenue, sacrificing short term margin (with enough gross remaining to cover interest payments on the equity /forums/images/graemlins/grin.gif) and then rebuilding margin percentages on a much bigger turnover...

It was a rollercoaster!

 

[CPD]

Almost without exception, everything we buy these days is built not to be repaired, but to be replaced. You could say it started with socks (you cant buy a darning needle in tesco), and is starting to emerge in the automobile market (no idea which they are) but cars are made where the bonnet cant be lifted, yes to increase income at garages, but in general, I guess, my point is that almost evrything is getting cheaper and cheaper and cheaper, relatively. So why not yachts too ?. If you have a pile of dosh to invest, and know what you are doing, then IMHO, buying Bavaria, which has already made a remarkable inroad into the stack high and flog cheap sector of the yachting market, makes an awful lot of sense. They will get cheaper, much cheaper, but they wont necessarily get better. In the meantime, the investment company will make its return, of that I am sure !

 

[tcm]

\"Cheaper not Better\"

Nah, i disagree.

The reason there's no darning needles is that darning needles don't sell. Socks are cheaper these days, perhaps last longer, and everyone is richer so they buy new socks instead of fixing old ones.

Same applies to cars and boats and/or to the lumps of kit screwed on to a car/boat. Cars are relatively much cheaper, able to do far highr mileages than in days gone by, and fixing them is a parts swap. Or buy a new car.

I think bav have got some frighteningly good products made essentially with the same stuff as many other boats. Volvo, vetus, teak decks, etc etc. So should be fine for new team to help expand markets.

 

[alec]

Re: \"Cheaper not Better\"

[ QUOTE ]
Nah, i disagree.

The reason there's no darning needles is that darning needles don't sell. Socks are cheaper these days, perhaps last longer, and everyone is richer so they buy new socks instead of fixing old ones.

Same applies to cars and boats and/or to the lumps of kit screwed on to a car/boat. Cars are relatively much cheaper, able to do far highr mileages than in days gone by, and fixing them is a parts swap. Or buy a new car.

I think bav have got some frighteningly good products made essentially with the same stuff as many other boats. Volvo, vetus, teak decks, etc etc. So should be fine for new team to help expand markets.

[/ QUOTE ]

A fair point. Also, another way to expand a market is to make the product affordable where it wasn't before. They have been very successful in this. No reason why they should not continue down this path. Unfortunately, many buyers forget the berthing and running costs of boats and dip out after a few years.

We are now starting to get a boat 'mountain' of secondhand boats and this can only get bigger. The 64,000 dollar question is how far away are we from saturation point ? I reckon not too far off. In Britain at least the gap between rich and poor is getting bigger all the time, and the prospect of poor getting near rich, so as to but things likes boats is diminishing.

House prices, as usual seem to hold the key. Particularly as the manufacturing base has gone. I think that governments will have to start nationalizing the land in the UK to stop the slide. I think that it would be a massive vote winner too.

 

[CPD]

Re: \"Cheaper not Better\"

Hi TCM, I dont disagree, I think you are right. I am saying things are getting cheaper, and I think you are saying that we are getting richer. Maybe its a combination of the two. I suppose what keeps it all going is finding whats next and where's next.

 

[Marsupial]

[ QUOTE ]
In the meantime, the investment company will make its return, of that I am sure !

[/ QUOTE ]

Perhaps, perhaps not. PE companies are motivated by revenue streams, and I am not convinced that they will be looking too deeply at the industry.

These deals take years to put together. Bavaria have been exaggerating the market for the last 4 or 5 years and their focus has been on price to the consumer. The competition this has created has led to cost cutting on grand scale and its clear that quality across the industry has suffered. As a result, designs from all producers have erred towards the cheap and light in an effort to maintain the price differential with Bav, Bene have produced “basic” ranges to compete directly.

I see a consumer backlash against indifferent quality led by the charter companies who will demand better products that are more robust. This will be good for the yachtsman, good for the charter companies but not so good for very high volume producers who will find the current gravy train unsustainable. They could find that they will have to put more material in but be unable to raise prices; a similar thing happened in the car industry in the 1970’s.

IMHO the current management team at Bav know this and have been very shrewd, I suggest they planned this exit strategy 5 years ago or more and have managed to get out on the crest of the wave.

 

[grumpy_o_g]

PE companies are motivated by the difference in the price it's bought for and the price it's sold for. They get big tax breaks on that return and there's all sorts of rumblings about Gordie's replacement closing the "loophole". You do have to keep the investment for at least 2 years though.

Unless it's got a product that can take on the market and grow that way, you're usually looking for a broken company that can be bought cheaply, fixed and sold on a few years later at a big profit. Badly managed companies lacking in investment are the classic target but, although the return is massive, the risk that the company doesn't succeed is also pretty big.

Not sure that Bavaria fits that description so maybe they just want a few "staples" in their portfolio??

 

[tcm]

backlash againast quality

really? The same was said when japanese made cars with thinner metal. Plenty of ways to make a cheaper boat, but they could be better as well as cheaper.

 

[PeterGibbs]

Norman, you make some good points.

Given the European culture, it is surprising Bavaria was sold at all. So it has to be a very conditional sale – there will be no blood in the fields of Giebelstadt. And Bavaria had to make a good case in the locality to go ahead – so Bain will be using Bavaria’s facilities and mass production know-how for a wider range of leisure related products in future. And no doubt there will be the same generous local subsidies that powered Bavaria Gmbh from a small industrial estate business in the middle of Germany to where it is today! In Germany, if a business has good export potential it gets help on a scale that would take our breath away in Blighty.

These are, I believe, the realities behind the deal. Not possible in France of course – the current climate there is too antagonistic. And UK ltd has no comparable base to offer since our cottage industry boat-builders stuck to their guns, thought small, and are now off the map. I still smart when I think what Westerley could have been had it not been managed by pygmies.

The quality issue will never go away, simply because boats are hand made. Given that the Bavaria boat park now numbers, say, 40,000+ boats, it is not surprising that some customers may not be satisfied. In my own case, my new boat soon showed two significant non-hull failings. These were put right immediately by Bavaria without stress, and at no cost at all to me. Can it be said no Oyster or Swan ever had to be snagged? It is a question of educating your customer’s expectations, then delivering to a standard.

Comparisons matter. When I board a Nyad 400 and observe how close in even small details it is to my Ocean, I am very happy to have a sturdy and well finished boat at about half what a Nyad owner has paid. You are correct that Bavaria has simplified its design and finish over the last 7 years and lowered prices as a result; it has gone for the mass market and removed the top end from its range of 3 classes (1998) - Ocean, Exclusive, and charter – all distinguished by the level of internal finish, not the thickness of the hulls or the quality of above deck hardware !

I don’t think Bavaria (or the big French builders) pitch their tent to the very narrow market of blue water hulls – but who says you have to have an Ovni or the like to sail larger oceans. A metal hull may work better in coral seas – but how is this relevant to the general market? Every make has sailed the great oceans - Westerleys , Moodys etc – have all made safe long journeys. The oft repeated slight that a boat not specified for blue waters is not fit to sail at all is baseless. Crippling failures in the Arc, where all makes set sail, are very rare - as you know. And charter boats will indeed be harder to sell in future - but because they are worked much harder, not because the hulls are cost reduced: car hire companies sell on within months, even within the warranty period, but charter companies try to make their hulls work several seasons – could this not have a bearing on resale values? If it made economic sense to charter Halbergs or Swans to the mass market, no doubt they would have moved that way some time ago?
___________________________________________________
…..previous generation of boats because they will not have stood up so well to the rigours of charter use.

It is my hope that the new owners of Bavaria will recognise that their best interests lie in enhancing the brand image, and that aiming to be the lowest price supplier per foot of boat is the wrong course to take if the end result is a reputation for
quality problems, and denial of them.
______________________________________________
I join with you in hoping the new owners of Bavaria will reinforce their reputation, and suspect we shall see plenty of innovation and diversification as they strive to recoup their investment. I can’t see how this would be helped by lowering build standards and upping the level of quality recalls/warranty work, so vitiating all the advertising and promotional spend about to descend on us. I have faith that German enterprises, and this still remains one in all key aspects, look more to the long term, eschewing short term excessive profits.

Finally, we are where we are for one main reason - state involvement in fostering and procuring advocate industries in mainland Europe. Bavaria Gmbh does not sit on a dockside or any usual evolutionary industrial site. It resides many miles from the sea in an industrial estate on the side of a small village some way from Wurzburg – but near Europe’s transport epicenter. It was an artificial employment-generating creation some 30 years ago. French state involvement in the growth of its boat building empires is well documented. So inter-state competition via state sponsored companies actually fostered the mass market for boats in Europe, where price and volume dominated in the market shakeout, and which has had such consequences for all of us. This was topped off through the EU and its absurd RCD scheme which is further pure protectionism for these state-procured businesses. The final judgement is probably that Bain had to do a deal with an established, state recognised company to get anywhere at all !

We live in interesting times, indeed…

PWG

 

[dulcibella]

Does the deal include the keels, or are they an optional extra?

 

[tcm]

ooh, perhaps that's where the dreadful PE guys are planning to make savings! Except er, oh never mind...

 

[Marsupial]

Re: backlash againast quality

hi
my point is trhat bavaria have already done the thinner metal thing (not sure the Japs ever did it) but that leaves the new owners with no more scope for cost cutting only improving. Improving will cost money in terms of sales volume and profitability and investment, they have just spent a record 1.3 billion euros buying the outfit so they may not be ready to make further investment - time will tell.

 

[Birdseye]

Re: backlash againast quality

It will indeed be interesting to see how Bain intend to make their return. They certainly cant use the approach common to PE purchases in the UK (buy a company that is badly managed, use cash flows to cover loan costa and re-coup much of the purchase that way, then manage a much tighter ship with an eye to the short term, sell back to the city at several times what you bought it for) because Bav was private, and it operates in a paternalistic / nationalistic environment with workers councils etc..

Could be they intend to ship production out to eastern europe - there's quite a bit of that going on in German manufacturing at the moment. Certainly they will set about improving the quality image - Bavaria sells cheap not just as a policy but because it has to given product quality reputation (deserved or not).

Perhaps a more interesting thought is what happens to the boat market as the big awb makers sell ever larger volumes and become ever more like the car companies. We have long held onto the idea that boats never depreciate away to nothing, but surely the corollary of low price mass production is replacement not repair. Apparently its getting fairly common for people toi buy an AWB and replace every three years with a new one, just like they would with the car.

So maybe here's an ever better business opportunity for Bain - boat scrapyards. Re-cycling old Bavs/Bens/Hanse etc It will come.

 

[Twister_Ken]

"In the words of the management team it will be "business as usual" Bavaria style, new models rolling out, new standard inclusions (eg microwave ovens on all yachts 34ft and over), and continued growth."

So that's all right then.