MasterCraft Owner Buys Hydra-Sports - 01/13/2010

MasterCraft Boat Co. CEO John Dorton confirmed yesterday that the holding company that owns MasterCraft bought Hydra-Sports last week from Genmar at auction for $1 million. Both brands are now owned by Wayzata Investment Partners, a Minneapolis-based investment firm. Dorton said, "We just think it's a nice fit. It's a very high-end product," he added. "It doesn't compete with our core line of MasterCraft. We have capacity in Vonore (Tenn.) at our plant."

Hydra-Sport 4100 Vector
Capt. Steve puts the Hydra-Sports 4100 Vector through its paces in one of the most exciting tests of the year.

Hydra-Sports was purchased by people who know and understand the boating business and care passionately about building high-quality, innovative boats. MasterCraft is a leader in its ski/wakeboard market segment, and typically each MasterCraft and Malibu have about 25% market share each in their category. MasterCraft is widely regarded as one of the most innovative builders in the U.S. in any class. For example, several years ago in introduced the first pickle-fork bow boat which has been widely copied. Last year they introduced the 300, which just won the Motor Boating magazine “Boat of the Year Award” in its class. MasterCraft has a SOTA production facility on Lake Tellico, the place where every one of its boats are water-tested before being shipped to its dealer network.

A Tough Year for MasterCraft, Too

2009 was a very tough year for both MasterCraft and Hydra-Sport. Early in the year MasterCraft went into virtual hibernation as the full impact of the Great Recession hit. Unfortunately its parent company was evidently not prepared to see the company through the financial draught. In mid-summer MasterCraft, which stayed in business and pretty much held its market-share position, was recapitalized by Wayzata Investment Partners. Since that time MasterCraft has been back to its old aggressive, innovative, and exciting self.

Hydra-Sports Has Innovation, Too

Hydra-Sport is one of the most innovative builders of center console fishing boats. Its 4100 is one of the largest production center consoles built, and its 3500 VX (see article in this issue), is one of the most unique boats on the water. We find it interesting that these two companies with such creative and competitive spirits have found each other.

Hydra-Sports personnel along with the rest of the boating industry were shocked last May when Genmar filed for Chapter 11 protection. The company continued operations, but with a reduced staff. Somehow the folks left standing at Hydra-Sports kept building boats and servicing customers and owners, confident that the cache of the brand which had been built up over many years, and the determination of a small cadre of management could see the company through to the other side of Chapter 11. Commends Them has had the pleasure of working with management at both companies during the last trying year. Our hat is off to the folks at both companies who have stayed the course through what has been an economic nightmare for the boating industry. We admire their tenacity in the face of adversity and their unwavering commitment to the people who owned their products, doing the best they could with the resources at hand. Perhaps it was their finest hour.

Reprinted from the January 12, 2010 Boating Industry e-Newsletter--

VONORE, Tenn. – From the moment the assets of Genmar Holdings LLC were put up for sale, MasterCraft had an interest in Hydra-Sports, MasterCraft President John Dorton said in an interview this morning.

“The customers have basically the same demographics,” he explained. “Hydra-Sports buyers just wake up in the morning and pick up a fishing pole instead of a wakeboard.”

That’s why Dorton, through MCBC Hydra Boats LLC, acquired Hydra-Sport for $1 million at the Genmar bankruptcy auction late last week.

Both the wakeboard and saltwater fishing markets have proven to be more stable than your average boating niche because of participants’ passion for their respective sports.

“We don’t sell to boaters so much as wakeboarders and fishermen,” Dorton stated. “Our buyers at MasterCraft consider themselves wakeboarders, not boaters. It’s the same with saltwater fisherman. Their passion for the sport is the extra glue to keep them in it in tough times.”

Nice Production Fit

After economic conditions caused MasterCraft to contract, the company began looking to fill the resulting gap in production with a brand that would complement its core business. Hydra-Sports is just the right fit, giving the company the added stability it was seeking, Dorton suggested. Assuming the court hearing on the Genmar sale, which is scheduled to be held tomorrow, goes smoothly, the sale will close on Jan. 20.

The factory tooling, molds and materials will be moved to Vonore shortly afterward with a goal of beginning production with the new model year, tentatively scheduled for late spring. While Dorton said that MasterCraft intends to invite some of the key Hydra-Sports employees to relocate to Vonore, the increase in production will be filled by MasterCraft employees who were laid off due to the downturn.

Because MasterCraft was at one time a sister company of Boston Whaler, its engineering team has center console experience, particularly Scott Wood, who has spent time at Hinckley, Boston Whaler and Wellcraft.

“He gives us even more confidence we’ll be competitive in this segment,” said Dorton.

Reaching out to dealers

MasterCraft senior management spent yesterday and today talking to current Hydra-Sports dealers. Dorton said his team is anxious to get those dealers in good standing with an interest in carrying the product going forward, which is most of them, signed up for the new model year.

As the company gets cash flowing through the business, it will be able to help those dealers get caught up on warranty claims and past marketing claims, he added, asking for dealers’ patience.

“I think the most important thing [to those dealers] is that Hydra-Sports is going to be a viable brand going forward vs. possible extinction for the brand,” Dorton concluded.

"We started out with a real interest in Hydra-Sports from the beginning. It wasn't because it was a carve-out from the other packages. It's not the first time we've considered buying Hydra-Sports, in fact we put a bid in back when it was in the OMC bankruptcy auction as well," said Dorton, who will also serve as CEO of Hydra-Sports.

Hydra-Sports began manufacturing fiberglass fishing boats just outside of Nashville, Tenn., in 1973 and was acquired by Genmar in 2001.

A court hearing is set for Wednesday to confirm the sale of all of Genmar's assets. Sales would become final Jan. 20.

Dorton said the plan is to move Hydra-Sports' tooling and molds to its plant and begin production in late spring for the 2011 model year. The company had been producing boats on a "limited basis," Dorton said.

They are in the process of talking with the brand's current "healthy, viable dealers," Dorton said. Hydra-Sports has a network of about 40 dealers.

"We're going to be very conscientious owners and work with the current Hydra-Sports dealer network and customer base to help them through any issues in the field currently and get into what hopefully will be a long-lasting relationship owning that brand for many years to come," Dorton said.

"We'll work with them to help clear up warranty issues," he added. "As you can imagine, we didn't profit any from the boats that were sold that are under the warranty population, so it will be partial participation, not full participation and we're going to try to work with dealers to help create an environment where we can use future sales to help fund some of their past receivables."

The new owners are not legally responsible for money owed to vendors, dealers or customers by the previous owners.

"We believe the vendors will have to work directly with Genmar on those claims," Dorton said. "We do intend to go back to the vendors that had been working with Hydra-Sports, set up new relationships and give them an opportunity to move forward with MasterCraft."

Dorton said they plan on bringing some of Hydra-Sports' current staff on board in the transition and the acquisition will allow the company to hire back some of its previously laid-off employees.

"While MasterCraft senior management will run the business, we will have separate design, sales, marketing and production teams," he said. "We plan on bringing some of the Hydra-Sports staff on board with us as we move forward and the remainder of the positions will be filled with former MasterCraft employees from when we had the layoffs. We've rehired about half of our work force... I think it will be a happy story for MasterCraft employees."