Brunswick to sell Sea Ray

Tue Dec 5 2017, 22:13 PM

Brand expected to be sold at a loss

Brunswick Corp said that it plans to sell its Sea Ray business, which includes the Sea Ray and Meridian brands. Brunswick executives, speaking to financial analysts following the announcement, expect the sale to be completed in the first half of 2018. They expect to record a possible loss.

"This decision was made after careful consideration, and reflects the evolving contribution that the Sea Ray brand has made to our marine portfolio,” said Brunswick chairman Mark Schwabero in a statement. "Our remaining brands will continue to be important elements of a balanced marine business, with our boat portfolio serving healthy, expanding market segments. This more focused strategy will provide the best opportunities for growth and will complement our other marine offerings, including engines, parts and accessories.“

Schwabero said the decision to sell Sea Ray, which should have about US$380 in projected sales for 2017, had nothing to do with the industry’s cyclicality, but more about the sterndrive and inboard segments. “It’s not a question of Sea Ray not coming back,” said Schwabero. “The entire industry has not come back to anywhere near its peak.” Schwabero added that outboards have a “different place” in the boating cycle because many outboard-powered boats are activity-based.

Brunswick’s boat companies will now be predominantly outboard powered, with even its other former sterndrive brand, Bayliner, having transitioned into mostly outboard power. “Our pipelines are in great shape and our boat portfolio remains a significant part of our overall portfolio,” said Schwabero. “This shift will also improve our risk and margin profile.”

Brunswick’s position as the world’s largest boatbuilder, however, will be susceptible when the sale is complete.  As IBI recently reported, the Bénéteau Group surpassed US$1 billion in boat sales for its current fiscal year, making it second only to Brunswick’s top spot with revenues of US$ 1.37 billion in the boat group (as of 31 December 2016).  The Sea Ray divestment will put the two builders on nearly equal footing for global boat turnover.

Schwabero said the sale would include brand names and intellectual property, manufacturing and product-development facilities, unsold inventory and other assets.  Sea Ray will offer “attractive value creation opportunities” to a new owner, he added.

The deal would also likely include a supply agreement with Mercury Marine to supply sterndrives and inboards to the new owners. Bill Metzger, Brunswick’s chief financial officer, said: “If you look at intercompany sales between Mercury and the boat businesses, Sea Ray is in the low 20% sort of range of those sales.” According to Brunswick, Sea Ray accounts for about 3% of Mercury’s total annual sales – or between US$60 million to US$65 million a year.

Sea Ray was purchased for US$350m by Brunswick in November 1986 from the brand’s founder Connie Ray who had some 4,500 employees and was building about 28,000 boats per year.  The Sea Ray deal came just one month after Brunswick agreed to buy the even bigger Bayliner Marine Corporation for $425 million from its founder Orin Edson.  At the time, the two acquisitions signaled the beginning of a grand strategy of vertical integration for Brunswick's core Mercury and Mercruiser engine business.

Brunswick will report the results of the Sea Ray and Meridian brands as discontinued operations for accounting purposes going forward. The company has retained Lazard’s advisory group to act as its investment banker for the transaction.