Roger Penske Discovers Boating - 02/11/2009
roger penske
Roger Penske, Managing Director of Transportation Resource Partners.

The Sport of Boating
and the way the
Boating Industry conducts business
may never be the same


Last Wednesday, August 15th, Roger Penske bought MasterCraft Boat Company for an undisclosed amount of money. The press release said, "Charlesbank Capital Partners and Transportation Resource Partners (TRP) have announced plans to jointly acquire MasterCraft Boat Company, in partnership with management, from US Equity Partners, an investment fund sponsored by Wasserstein & Co..."

What all of that means is that Roger Penske – the Managing Director of TRP -- has not only discovered boating, but also the boating industry.

Roger Penske
Penske has become world-famous by virtue of having the most successful Indy Car Racing Team in history.
He has had few rainy days.


A Hot Category

MasterCraft, located in Vonore, TN, is the world’s second largest builder (about 2300 units in 2006) of water ski and wakeboard boats, after west coast builder Malibu (2900 units in ’06). The total US market for these specialized inboard-powered boats is about 10,000 annually, with the rest of the market made up primarily of Correct Craft (1600 units), Moomba (1260 units), Supra (644 units) and Tigé (850 units). The market for these boats is small, but it has been one of the few growing categories in the sport over the last few years, thanks to the advent of wakeboarding – both with and without a tow rope. It is simply snowboarding on the water, with about the same constituency. Ski/wakeboard boats are also complex and the most creatively-designed boats on the market these days for their size. They are also expensive.


Electricity in the Hallways

Located on the banks of Lake Tellico, south of Knoxville, MasterCraft tests every one of its boats before shipment and has professional ski/wakeboarders on staff to work out the wrinkles on new products and suggest innovations.

Company president and CEO John Dorton says that the plant will stay in Vonore and will likely add employees due to booming international sales and its saltwater line. “The entire management team will stay intact,” Dorton said, and that is likely to be true since one of the stated acquisition requirements of TRP is a solid management team already in place. MasterCraft has that and the halls of the executive offices are electric with excitement – more what one might expect in Silicone Valley than in the sleepy boating industry – as the young execs dart from meeting to meeting, cooking up the next ad campaign, or product feature, or new model.

5,000 Annual Units in 5 Years?

Dorton also said he expects business to double for MasterCraft during the next five years and with this deal the company will have the financial backing (thanks to Jefferies and Co.) to meet its goals. Roger Penske said in the press release, "MasterCraft has established an outstanding reputation for performance, quality and product innovation. We are pleased to have joined the MasterCraft team and look forward to supporting the company during the next phase of its growth."

In the M&A business, the seller usually knows more about the company and its prospects than the buyer, and often that is why the company is on the market. But in this case, it looks like the VC owners made a tidy profit and would like to move on given the volatility of the boating market, and the new VC buyers have their eyes wide open and some pretty big plans.
Andrew Janower, managing director of Charlesbank Capital Partners, also commented on the acquisition in the release, saying, “…We have partnered successfully with TRP in the past, and now we look forward to putting our combined strength behind the preeminent MasterCraft brand to help the company capitalize on its many opportunities for growth."

Mr. Opportunity

It is hard not to stand in awe of Roger Penske. In 1958, at the age of 21, he drove his first official race in the SCCA (Sports Car Club of America) National in Maryland. The following year, he won his first race at the SCCA Regional in Connecticut, and graduated from Lehigh University in Allentown, Pennsylvania, where he earned a B.A. in industrial management. In 1960, Penske won F Modified, and with his notorious car, known as the Zerex Special, he won three nationals in a row in 1961. He made his Formula One debut that same year, and was named Sports Illustrated's SCCA Driver of the Year.

Penske usually smokes the competition, and makes the Marlboro Man look like Billy Crystal in "City Slickers."

In 1962, he drove in Monaco and the U.S. Grand Prix at Watkins Glen, and became the D Modified champ in '63. During the Bahamas Speed Week of 1964, Penske won the Nassau Tourist Trophy, beating out top drivers such as AJ Foyt and Bruce McLaren, while his win in the Governor's Trophy race established his reputation as one of the world's best racers.

Then, he quit racing to concentrate on his Philadelphia car dealership. It wasn’t long before he bought the lucrative Detroit Diesel distributorship in northern New Jersey from the son of Donaldson Brown, who was Chairman of the Board of GM during WWII. The story goes that Penske had his name up on the distributor’s huge billboard before the ink was dry on the contract.

Indy Racing

In 1968, Penske Racing entered Indy car racing with driver Mark Donohue behind the wheel, and debuted at the Indianapolis 500 in 1969. (Donohue also raced offshore powerboats.) The Penske Racing Team’s victories at Indianapolis are legendary, and usually his cars were on the pole and the ones to beat. Donohue, Rick Mears, Bobby Unser, Al Unser, Danny Sullivan, and Emerson Fittipaldi are a few of the drivers who won the Indy 500 over three decades for the Penske Racing Team.

Penske’s success was no accident. There was simply no other car owner in the world with the determination, technological smarts, organizational ability, money, and charisma of Roger Penske.

A Genius at Business

There isn’t a person that we know who personally knows Roger Penske that doesn’t call him a genius at business. He bought Detroit Diesel from GM and some people thought – for awhile – he had made a mistake and was wasting his time and treasure on a worn out WWII factory with 40-year-old 2-stroke diesel products that looked liked like they had been made by Rube Goldberg. While their leaky diesels dominated the big boat market, DDA’s engines had less than 3% of over-the-road truck business, where buyers had better options such as Cummins and Cat.

After decades of capital investment neglect, GM finally designed and tooled a new product – the Series 60 4-stroke diesel. But by that time, GM “management” was fed up with all of the warranty problems and puny sales and was happy to form a joint venture with the Penske Corporation Jan. 1, 1988. That happened to coincide with the introduction of the Series 60 truck diesel.

By 1993 Detroit Diesel’s over-the-highway heavy-duty truck business had gone to 33% market share and the company went public on the NYSE.

Penske Truck Leasing –Tip of the Iceberg

Where did all of the Ryder rental trucks go? Penske’s success in truck rentals, in partnership with GE capital, is legendary. In 1993 Penske created a joint venture with Italy’s MV Motori, a maker of small, common-rail diesel engines, where he bought a 51% stake. Later he bought the other 49%, and has recently sold 50% of it to GM, pending EC approval. The value of the deal is not known.

Among many other companies and joint ventures, he or his companies own outright, or a significant stake in, over a dozen companies including the United Auto Group (the world’s largest auto dealership with 252 dealers in the US and internationally), National Powersport Auctions (three Harley-Davidson motorcycle auction sites), Universal Technical Institute (has a marine engine mechanic training school in Orlando, FL, in addition to other engine schools), and the Deer Valley Ski Resort (probably the best-run ski resort on the face of the planet).


Penske riding shotgun with Dr. D., Pres. and CEO of Mercedes, maker of the Smart car.
Then there is the Smart car. Penske has gained U.S. distribution rights to the 3-cylinder, 9’ long, two passenger car which looks and is tiny – but which has more front seat leg room than a Mercedes and gets 50 mpg. They have been sold in Europe for years and Penske is gambling the time is right to bring them to the U.S.

When Penske Enters a Room…

…everybody mobs him and talks…and HE listens. He likes speed, order, and business turn-arounds or opportunities no one else sees. Once in an industry (such as selling engines to trucking companies) he has a sharp eye for opportunities – he is involved with no fewer than 7 truck-related businesses, and five automobile-related businesses. With over 252 auto dealerships he understands customer service, and the concept of “customers for life.”

With the Harley auction operation he understands how to create value from used motor toys. With the Universal Technical Institute he has ready access to marine mechanics, the Achilles heal of the boat business. Penske has a net worth estimated by Forbes Magazine at $2.2 billion in 2006, but this fortune pales beside his proved access to the capital markets and adoring investment bankers around the world who grew up watching him on television every Memorial Day with earphones on, stoically directing his drivers at Indy – and never permitting himself a Wha-Hoo if his car won or a discouraging word if his car lost. He is a man’s man and an icon of our age.

Quo Vadis?

The big question in the marine industry the last seven days has been: “Where will Penske go next? Do you think he will take aim on our niche? How will he change the business?” Interestingly, Malibu, Correct Craft and other ski/wakeboard builders are not quaking in their topsiders. Some managers at these companies feel that while MasterCraft's market share might grow, Penske will also do things that will grow the overall ski/wakeboard market, meaning all six of the companies will sell more boats.

The truth of the matter is that virtually the whole industry could be at Penske’s feet, except for the few independent, family-owned companies who take pride in nurturing their business and handing it down to the next generation. But no matter what happens, that man who rarely appears to smile should have a positive effect on the sport and the quality of the boating industry in general. Welcome aboard, Roger. What took you so long?

See tests of MasterCraft boats --