Yacht investments - private equity is back in the regatta

Mareen Goebel
23 April 2010

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Private equity backers sunk a lot of money into yacht builder deals during the peak of the buyout boom, taking control of the biggest brands in the industry within just a few years. In many cases, the outcome has been disastrous. Now, a private equity firm has closed the first yacht-related deal post-Lehman. Mareen Goebel gives an overview.

The boom years between 2006 and 2008 saw a flood of yacht-related deals, involving some of the biggest names in the business: Monitor Clipper Partners acquired Hinckley Yachts in the US in 2008; Ferretti was bought by Candover from Permira for €1.7bn in ‘06; and Germany's Bavaria Yachtbau was acquired by Bain Capital in 2007 for €1bn.

Trusting the luxury segment would prove more resilient than the overall consumer sector, these deals were also highly leveraged and this proved to be problematic in some cases.

Ferretti groaned under more than €1bn of debt, leading to Candover writing off its entire investment and walking away, rather than inject €100m in fresh money. Meanwhile, Bavaria Yachtbau was acquired with €800m in bank financing, but Bain Capital's stake in Bavaria sailed away when Commerzbank dumped Bavaria's debt with enormous discounts on the secondary debt market, allowing Anchorage and Oaktree to stage a successful bid for the company. These opportunistic investors collectively owned 95% of Bavaria's then €960m debt package and took most of Bain Capital's stake. The financial restructuring saw a €55m capital injection and the write-down of over 90% of senior and junior debt tranches.

Other yacht companies were even harder hit. Listed Rodriguez Group, based in France, has just had its debt restructuring approved by courts, ending a year-long protection from its creditors, while sailing yacht builder Dehler, a portfolio company of Buchanan Capital Partners (now Aheim Capital), filed for insolvency when the crisis hit.

In short, private equity has not been particularly lucky with its recent yacht investments and might be forgiven for getting a sinking feeling when looking at the sector.

However, German small-/mid-cap investor, Afinum Management, has now acquired Sinnex Holding, a German outfitter and refitter of luxury yachts for customers in the ship building sector.

Around 85% of the company's revenue come from outfitting yachts of more than 40 meters in length, with the rest derived from outfitting luxury residential and representative real estate. The company generates a turnover of €24m and is on course to achieve €30m in the current year. The deal itself was done to prepare a succession solution in the next five years for this ‘hidden champion'.

"Of course we are aware of the other yacht-related deals, but in this case, Sinnex is a highly-specialised niche provider. The customers for these kinds of yachts are not affected, so the company is on a healthy, organic growth course, which, depending on orders, can be as high as 30% per annum," comments Berthold Schmidt-Förger of Afinum, who worked on the transaction together with Dr Gernot Eisinger.

"We could even have easily found bank financing for the transaction. The banks were very interested since orders take 18 months to two years to fulfil and we know exactly how the company will do, since the rate of cancellations in that segment is extremely low."

In addition, the entry hurdle into the market is high due to the skills and technical expertise involved. No two of the company's products are alike, as its level of customisation makes every project unique. Of course, this level of service has its price. While most of the luxury goods market has taken enormous losses, the very top end of luxury services and goods, aimed at ultra-high-net-worth individuals, remains beyond economic rationale.