Polaris Industries, the $5.4 billion (sales) maker of snowmobiles, off-road vehicles and motorcycles, has agreed to buy the country’s largest pontoon boat maker, Boat Holdings, for $805 million. The all-cash transaction, expected to close in the third quarter, will round out Polaris’s portfolio of power-sports products and, it hopes, give it opportunities for cross-selling.
“Most of our competitors have water products. We’re kind of late to the party,” Polaris CEO Scott Wine told Forbes in a telephone interview. Yamaha, Kawasaki and others that compete with Medina, Minnesota-based Polaris in its existing markets already have boat divisions, he noted.
The U.S. market for new powerboats is $8 billion, and pontoon boats are the largest and fastest growing segment of the industry with an 11% compound annual growth rate since 2010. There’s strong overlap between the different types of powersports with some 30% of Polaris’s existing customers owning a boat.
Elkhart, Indiana-based Boat Holdings makes deck boats and cruisers, in addition to pontoon boats, with more than 200 models under the Bennington, Godfrey, Hurricane and Rinker brands. Founded in 1997 by boating entrepreneur Steve Vogel, the company had $560 million in revenue last year, with Ebitda of $74 million. “We thought if we were going to get into boats, we wanted to get into it with a major player,” said Wine, 50, a former naval officer who became Polaris’s CEO in 2008 after stints at United Technologies, Danaher and Allied Signal.
Boat Holdings, which manufactures its boats in Indiana, has been growing faster than the industry, and has been at the forefront of the shift to high-featured, high-performance luxury boats, according to Polaris. Even without custom finishes, these boats are pricey: A 25-foot Bennington R Series fastback pontoon boat can run $60,000 or more.
The deal could help flesh out Polaris’s product offering at a time when its largest segment in off-road vehicles and snowmobiles – which represented 64% of sales and 75% of gross profits in the first quarter – has been under pressure in the wake of recalls due to fire risks. Shares of Polaris, which has a market capitalization of $7.3 billion, have fallen nearly 9% year-to-date as Wall Street has been skittish about slowing growth and compressed margins. “Competition has better product [in off-road vehicles] and is being promotional,” RBC Capital Markets analyst Joseph Spak noted in an April research report. Meanwhile, he wrote, “consumers get trained on deals and that cycle is difficult to break.”
After the first quarter, Polaris told analysts that it expects 2018 sales growth in the range of 4% to 6%, with earnings per share of $6.05 to $6.20. The Boat Holdings acquisition should add 4 cents per share to earnings in 2018, with the potential for growth going forward, according to Polaris CFO Mike Speetzen.
Wine said that he’d begun looking at Boat Holdings some time ago, but put the idea on hold as the company considered a far larger bid for Ducati. European auto giant Volkswagen had put the Italian motorcycle brand up for sale in April 2017 to help raise cash for a strategic overhaul following its emissions scandal. Reuters reported that Polaris was one of five bidders ready to pay about $1.8 billion when VW told them to hold off making binding bids as the deal faced opposition from labor leaders and VW’s controlling Porsche and Piech families. (New Volkswagen CEO Herbert Diess indicated at the company’s May shareholder meeting that Ducati, along with other non-core assets, might again be readied for sale.)
“When Boat Holdings came up for sale, we looked at it. We were weighing it against Ducati. We decided to go down the Ducati path and that ran away. Boat Holdings was still available,” Wine said. The Vogels offered the deal to just a handful of companies, he said, and Polaris was their preferred choice. Over the past two months, as discussions heated up again, the two sides hammered out a deal. The structure of the deal will give Polaris a tax benefit of approximately $100 million, reducing the effective price of the deal. The price represents a multiple of 9 times Ebitda, a discount to both Polaris’s own valuation and to comparable publicly traded boat companies, according to CFO Speetzen.
Boat Holdings will continue to operate as a distinct business unit after the deal closes and will report to Bob Mack, Polaris's senior vice president of corporate development and strategy. Steve Vogel – who Wine calls “the mastermind” and “a very efficient operator” – will stay on as chairman and as a strategic adviser to Polaris, while his son and Boat Holdings’ CEO Jacob Vogel will continue to lead the boat business. The Vogels are Boat Holdings’ majority shareholders with a stake that Forbes estimates is worth between $400 million and $500 million. Private-equity firm Balmoral is also an investor. Neither of the Vogels was available for comment. In a statement, Steve Vogel called Polaris "the perfect partner" for continued expansion.
This isn’t Polaris’s first major acquisition. The company has been trying to challenge Harley-Davidson in the motorcycle market with its Indian bikes. Wine purchased that revered brand in 2011, and subsequently closed the company’s longstanding Victory brand. “Rather than trying to develop something ourselves, and create products and brands and distribution, we’re buying one of the better assets in the boating industry,” Wine said. “This will be the only large acquisition we do this year.”
