Breaking news: WM acquired by private equity firm

Announcement in yesterday's Soundings Trade Only daily email:

West Marine acquired by private-equity firm | Trade Only Today

Interesting! I wonder what this means for those of us who use the store?
I suppose time will tell...
Bruce

Whatever your feelings are about WM Randy Repass is a boat guy, the private equity firm that is buying it are profit guys. Seems like these things don't turn out well.

"Whatever your feelings are about WM Randy Repass is a boat guy, the private equity firm that is buying it are profit guys. Seems like these things don't turn out well."

True, but they are not spending $330Mil in order to trash the company Only time will tell.

I'm sure WM enjoyed their profits before this acquisition. Why else would they look attractive to a buyer? I think "brick and mortar" businesses are in for a tough fight in the future. We will see!

I wonder if they're going to move forward and focus more on internet sales?

Wonder what happens to BoatUS?

Good question but I bet they don't do much. I have to believe it's a cash cow for them.

Thanks for posting this, OP

Very interesting. Will be watching to see how this turns our for us consumers!

What happens to West Marine is totally irrelevant to me because their prices are so crazy and there are so many other good sources for marine equipment & supplies; I never go in there. They may have cornered the market elsewhere but not in New England.

I'm with Brooksie. There are other places to shop online where I don't have to pay WA sales tax and the product prices are often lower.

West has some great deals every now and then...us I agree having even an expensive store in town is better than none at all some days.

Shopping around is critical for marine supplies, it seems no one place is cheapest for all or carries what you are looking for.

West Marine has been seeing growth from footwear, clothing, fishing equipment, and paddle sports. I'm guessing 60% of floor space is now dedicated to these groups. Boat equipment is shrinking. I would expect the trend to continue.

If I need something quickly I go to the nearest boatyard. Otherwise the internet.

Lands End used to be a ship chandler ....you could buy lots of boat items, dingies and outboards from them...now they are all clothes.

Whether West goes that way or not...who knows.

But some places are thin on marina ship stores that carry a lot.

One West purchase Ive had lately was a shower sump while cruising...no marina stores around, wasn't waiting for regular delivery or paying onernight, and it was only anout 10 bucks more than ordering. So tbat was worth it to get going quickly.

Well, Monomoy clearly thinks there is upside since they paid a 32% premium over the market price. It's value as a business in its current form is presumably reflected in it's current market price. I could understand if it were the first step in a consolidation move, but west already did that a long time ago. Maybe they plan to roll in a service angle to the business like GeekSquad. Given the high cost of marine services, and no corresponding need to perform or deliver, it could be a good idea. I just think they must have some bigger plan, and one that can't be carried out as a public company on a quarterly treadmill. Dell is a good example of a big (much bigger) company that did such a thing.

High Wire said:

Wonder what happens to BoatUS?

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West Marine bought the BOAT/US products division (retail operation) in 2003. They'd already bought E&B Marine in 1996.

When they went public in 1993 with an IPO price of about $23, they were every boat owners favorite marine store...and everyone who had enough spare change to buy their stock did so. I was able get in at a little under $25...it quickly shot up to the low $70s and split 2/1...at which point I sold half my shares to buy my last boat. A good thing I did because their stock price has done nothing but go lower ever since. When it got down to around $19 I sold the rest and glad I did 'cuz it's continued to tank. The $12.97/share the new owners agreed to pay is actually higher than it's trading price has been for some time....for the past year it's been trading <$10, as low as $7.88 last fall. It shot up to 9.85 today, I suspect in anticipation of being able to sell those shares to the new owner for nice profit.

'Twill be interesting to see what the new owners are gonna do to try to turn it around....but although their stock hasn't been worth much, they've been profitable, even paying a decent dividend. Since it'll be privately held, they'll be the only investors now, so they should have plenty of incentive.

Hopefully they will provide more competition in the industry. BTW they do have a Post Marine account that will sell you products at a discount, walk into the store and pick what you want go to pay and show your Post card for some decent discounts.

Private Equity usually can see a big opportunity before entering, other wise they don't do it. They do some financial engineering while trimming employee numbers and cost, and reducing inventory of slow moving items in particular, and a year or two down the track relist and sell-out for mega-bucks. Seldom ends well for customers or anyone but the PE guys. I hope its different for WM, but chances are that in 5 years folks will be lamenting their demise.

The electronics shop chain Dick Smith in Australia is a classic example.
https://en.wikipedia.org/wiki/Dick_Smith_(retailer)

Peggie. Good history of West and their stock price. I equate their pricing problem starting with the advent of Port Supply. None of the boatyards in my area do business with Port Supply but I know many people both here (Cape Cod) and in FL that have Port Supply cards by some nefarious means. This results in a 2 tier retail system: one for people that don't mind being "soaked" when they buy and one for people that are dishonest. I am not in either group.

Insequent said:

Private Equity usually can see a big opportunity before entering, other wise they don't do it. They do some financial engineering while trimming employee numbers and cost, and reducing inventory of slow moving items in particular, and a year or two down the track relist and sell-out for mega-bucks. Seldom ends well for customers or anyone but the PE guys. I hope its different for WM, but chances are that in 5 years folks will be lamenting their demise.

The electronics shop chain Dick Smith in Australia is a classic example.
https://en.wikipedia.org/wiki/Dick_Smith_(retailer)

Click to expand...

Right on, private equity buyouts here,incl by US firms like KKR, are usually followed by a rationalization of the business before it gets flipped for a profit,often to retail share/stock buyers who may or may not be getting something worthwhile. The Dick Smith is a good/bad example. Myer Stores was another. Customers come second, except you need to look like you are retaining them, to do a profitable flip.

Private Equity firms are primarily in one business, that of buying and selling. All operations are geared toward the eventual sale.

Looking at Monomoy Capital, you'll notice they have more Past Portfolio Companies than Current Portfolio Companies. Note on this page the word "Select" when referring to past, indicating there are considerably more past. Monomoy held some companies as little as two years and others 4 or more.

Now, how will it impact the consumer. Think the words "lean and mean." While there are no guarantees, I would expect them to divest or close any non-profitable areas of the business and/or locations. They're not likely to keep a non performing store simply because they think they need presence within reach of boaters. They're also not likely to carry non-profitable products simply to have a complete line. Personnel cut backs are also results in most cases. Now sometimes companies that lack good management systems benefit as they try to improve them and have the funds available to do so.

Everything will be geared toward having a more attractive company to sell. They obviously feel prior management has not maximized profits and they can.

A quick look at West Marine. Their profitability took a big hit going from 2012 to 2013 and then the bottom dropped out in 2014. The good is that even in 2014, they didn't lose money. Here is income from operations by year:

2012-$25.3 million
2013-$15.7
2014-$4.4
2015-$7.7
2016-$12.0

Sales have actually increased slightly over that time. However, gross margin was 29.2% in 2016 vs 30.7% in 2012 while S, G, and A expenses were 27.5% in 2016 vs. 27.0% in 2012. So operating profits 1.7% in 2016 vs. 3.7% in 2012.

Paying a premium over today's stock price is understandable when one realizes the potential metrics just in regaining something closer to 2012.

You're going to see emphasis on gross margin % and on reducing S,G, and A overhead. As some progress has been made the last two years, there is at least a knowledge base off of which one can work. You go in knowing management recognizes some of the issues.

I like West Marine so much so I have an account there. Only thing is the drive to get there. A new brick and mortar store is opening in my area within the next few months. I like the service I get there and hope it continues.

I go to West Marine for some things but I definitely pick and choose. In RI, they price match Defender. But they recently pissed me off when it came time to install my 40 amp battery charger. I needed 2 50 amp fuses, they only had one. The local owned hardware/marine also had one! So I found myself driving back and forth between the two stores. I didn't buy the charger from either one. I used Bay Marine in CA. Best price anywhere for the particular model .

WM has long had an inventory turnover problem. In this area they have steadily reduced the variety of boat parts and sailboat rigging supplies. We boat owners have such a wide variety of small volume needs that it is hard for so many stores to supply all that. have you noticed how old on the shelf boat shoes seem? Centralizing inventory will have to occur with most hardware on line only.

I remember a WM in CA that was like a sailboat rigging shop. that model just cant work any more.
It also seems fewer owners do their own work any more

I personally would not invest a single penny in this company in the long run. My prediction: they will be eaten alive by defender and a few others who will in turn then be eaten alive by several million enterprising sellers on the amazon platform. Its going to be a very low margin business in a few years and I'm surprised PE would make a play here. Must have been a capital issue / fire sale.

kev_rm said:

I personally would not invest a single penny in this company in the long run. My prediction: they will be eaten alive by defender and a few others who will in turn then be eaten alive by several million enterprising sellers on the amazon platform. Its going to be a very low margin business in a few years and I'm surprised PE would make a play here. Must have been a capital issue / fire sale.

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Defender is already suffering from a lot of good online suppliers...the comperitors are just are smaller for now. But masters at drop shipping, thus savings show in less shipping and inventory costs.

Too bad? Good? Well, going to one source all the time has its rewards.

Well, this is a timely, real world event to demonstrate why I love having a large West Marine store nearby.
Yesterday, I was standing in the bilge, fishing out lifejackets for our dinghy to show the very nice Coast Guard people (another story for another time...) when I stepped on the rudder reference unit for our auto pilot.
I heard this "crack" and knew what I'd done.
After the nice woman from the Coast Guard was satisfied with our life jackets (she loved Esmeralde by the way, said it was her favorite boat in the harbor!) they left. I then turned on the pilot and sure enough, I got an error message "rudder feedback missing".
Long story short, Defender did not have one but the West Marine in Middletown did. I purchased it and a friend is picking it up and taking it to the Block Island Ferry for transport here. I'll have it installed before we head home!
Saving $20 or so dollars is far less important than actually getting my hands on one when I needed it!
West Marine has been very good at this lately.
Bruce

BandB said:

Private Equity firms are primarily in one business, that of buying and selling. All operations are geared toward the eventual sale.



Looking at Monomoy Capital, you'll notice they have more Past Portfolio Companies than Current Portfolio Companies. Note on this page the word "Select" when referring to past, indicating there are considerably more past. Monomoy held some companies as little as two years and others 4 or more.



Now, how will it impact the consumer. Think the words "lean and mean." While there are no guarantees, I would expect them to divest or close any non-profitable areas of the business and/or locations. They're not likely to keep a non performing store simply because they think they need presence within reach of boaters. They're also not likely to carry non-profitable products simply to have a complete line. Personnel cut backs are also results in most cases. Now sometimes companies that lack good management systems benefit as they try to improve them and have the funds available to do so.



Everything will be geared toward having a more attractive company to sell. They obviously feel prior management has not maximized profits and they can.

Click to expand...

I agree with all that, but it presumes the upside is all in operational efficiencies. It might be, but plenty of private equity firms also look for more strategic moves like rolling a bunch of companies together a la Navico, or by extending into other related markets a la Dell. Bigger strategic moves like that typically involve large capital investments and compromised P&L for some period of time. For better or worse, public company expectations discourage/ prohibit such moves.

The other private equity approach is decomposition where they think the sum of the parts is worth more than the whole. The company gets split up and sold off as pieces. This happened to Digital was back when, though not under private equity. Regardless, I can't see his as the strategy for West.

There are always operational efficiencies to be found, so I'm sure hat will be part of the plan. But it's hard for me to see that creating a big enough boost in value, especially when they are already 32% down with the premium they paid. So my guess is that there is a strategic element as well, and service seems the most likely. Just imaging offering installation service with every chart plotter, fish finder, VHF, radar, and sound system that they sell. There is pretty much zero customer acquisition cost - the person is standing in front of you buying the product, and asking for installation tips or references. And I wouldn't be surprised if there is some incentive $$ behind such a move from the electronics vendors who suffer through supporting unqualified self-installations, many of which I expect originate at West.

But I totally agree with the bottom line assessment. Monomoy sees a move that will significantly increase the value of West. Time will reveal what that is.

psneeld said:

Lands End used to be a ship chandler ....you could buy lots of boat items, dingies and outboards from them...now they are all clothes.

Click to expand...

I remember Lands End back in the 60s/70s. They sold boating hardware, mostly sailing hardware. Mast extrusions and blocks and cars and winches and.. They were the go-to place, at least in the midwest.

Their catalog was a work of art that I eagerly awaited each year. The last 20-30 pages of it were articles on sailing, rig tuning, racing tips and other great stuff.

No doubt they're doing 50x more business now selling clothes but I sure miss the old days.