Genmar Holdings, Inc.

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Genmar Holdings, Inc.

100 S.5th St., Ste. 2400
Minneapolis, Minnesota 55402
U.S.A.
Telephone: (612) 339-7600
Fax: (612) 337-1930
Web site: http://www.genmar.com

Private Company
Incorporated: 1986 as Genmar Industries, Inc.
Employees: 6,500
Sales: $858 million (2000 est.)
NAIC: 336612 Boat Building

Genmar Holdings, Inc. is the largest manufacturer of recreational boats in the United States. Comprised of 12 different companies, Genmar builds over 300 models of boats at nine manufacturing locations in the United States and Canada. Genmar’s product line runs the gamut from small fishing skiffs to luxury yachts. The company’s boats are sold by 1,300 dealers in all 50 states and more than 30 foreign countries. Minneapolis-based businessman Irwin Jacobs assembled Genmar over the course of 24 years as he gradually bought small or bankrupt boat manufacturers. Larson Boats, the oldest of the companies owned by Genmar, dates back to 1913, and many of the other companies were founded in the 1950s or 1960s. In a series of often complicated transactions in the 1980s, the components of Jacobs’s boat-building empire emerged from their parent company Minstar and coalesced into a single boat-manufacturing company under the name Genmar. Genmar is focused on increasing its market share through technological innovation and exceptional customer service. New manufacturing methods such as VEC and Roplene have allowed the company to improve the strength of its products and develop cleaner manufacturing processes. The company’s brand names include Aquasport, Carver, Crestliner, Glastron, Larson, Logic Marine, Lund, Ranger, Trojan, Wellcraft, Four Winns, Hydra-Sports, Javelin, Lowe, Seaswirl, and Stratos.

Piecing Together a Boating Empire: 1978-89

Irwin Jacobs earned the nickname “Irv the Liquidator” for his aggressive business practices in the 1970s and early 1980s. In takeover attempts, both successful and unsuccessful, of major corporations such as Pabst Brewing Co. and Kaiser Steel Corp., he earned the reputation of a corporate raider who preferred to dismantle failing enterprises rather than operate a business.

Jacobs had honed his business skills from an early age. He obtained his first business experience selling used feed bags for the Minneapolis-based family business Northwestern Bag. Later, after a two-day stint at college, he developed a knack for liquidating the merchandise of defunct retail stores. Jacobs’s first major profits came when he negotiated loans for deals with Grain Belt Breweries and the bankrupt W.T. Grant & Co. Soon Jacobs was a familiar figure on the Minneapolis business scene, known for his opulent lifestyle that included a silver Rolls Royce and a mansion with two-inch thick marble floors.

Jacobs acquired the first component of what was to become Genmar in 1978, when he bought a 25 percent controlling stake in Arctic Enterprises, Inc., a Minnesota snowmobile company that also happened to make Larson and Lund boats. Larson, located in Little Falls, Minnesota, made small fiberglass fishing boats. Lund was located in New York Mills, Minnesota, and had been making aluminum fishing boats since 1948.

Arctic went downhill after Jacobs’s acquisition. Two years with little snow, a resulting decline in sales, and high interest rates pushed the company to bankruptcy by 1981. Jacobs subsequently sold the snowmobile business, built a profitable company around the boating divisions, and renamed the company Minstar. He also began playing a more active role in the company’s management. Revenues for the boating division in 1982 were $25.3 million.

Minstar’s focus on powerboat manufacturing was soon diluted as Jacobs used the company as a general investment vehicle. In the spring of 1983 Minstar bought a moving and storage business known as Bekins Co. The following year Jacobs acquired the Florida-based holding company Aegis Corp., whose businesses included ship repair, natural-gas compressors, and tread rubber. The company also owned Wellcraft Boats of Sarasota, Florida, a manufacturer of fiberglass fishing boats, sport cruisers, and the high-performance Scarab line.

A few months later Jacobs expanded Minstar’s operations to include a stake in an oil and gas exploration company. Nevertheless, the company’s boating sector continued to grow. New York-based AMF Inc. became a part of Minstar in 1985. The company manufactured sport and leisure products, but also marketed the Hatteras line of boats. Hatteras specialized in luxury yachts, most of them over 50 feet in length and with prices of over $1 million. Soon after the acquisition Jacobs fired the company’s management, sold about a dozen of its peripheral business units, and kept only the sports products and Hatteras businesses. By now Minstar was manufacturing Larson, Lund, Wellcraft, and Hatteras boats. Revenues for the four brands reached $242.6 million in 1985.

In mid-1986 the four boat manufacturers were consolidated and spun off as a new company, Genmar Industries Inc., 82 percent of which was still owned by Minstar. Eighteen percent, or five million shares, of the new firm’s stock was sold to the public in a July initial public offering, raising $57.5 million. The boat manufacturing business was prospering, and Genmar planned an expansion at four plants to increase production by about 40 percent. The company also bought Glastron, a manufacturer of entry-level and mid-range sport boats, in mid-1987. The acquisition of Henry Boats Inc. of Ohio was considered, but a negotiations impasse scuttled the deal.

Genmar attained record profits for 1987. Operating income reached $35.9 million, up 70 percent from the year before, on revenues of $448 million. Minstar as a whole, however, was not performing as well. Multiple acquisitions had caused the accumulation of considerable debt and, with operations in such disparate areas as oil-drilling services and sports equipment, investors were unsure just what Minstar’s business focus was.

In response, in 1987 Jacobs considered having Genmar buy Minstar and spin off the non-boatmaking operations of its former parent company. A decline in the stock market, however, made the deal unworkable. As an alternate strategy for increasing the value of company stock, Minstar began buying back some of its shares. The company also went ahead with plans to trim its peripheral operations and focus on Genmar’s boat industry. In 1988 Minstar went completely private, bought out by Jacobs’s IJ Holdings Corp. Jacobs and Carl Pohlad, a Minneapolis investor, paid shareholders about $400 million in cash and notes, which meant that Jacobs, the largest shareholder, received $105 million, a considerable profit over his original investment in the company.

Growth During Hard Times: 1989-94

The late 1980s were a turning point for the boat building industry. Throughout the prosperous mid-1980s, banks had been willing to provide loans for up to 80 percent of the cost of a million-dollar yacht. The high-end Hatteras boats were one of the most profitable divisions of Genmar’s operations. Revenues rose yearly, reaching a peak of $518.2 million in 1988. The following year, however, marked the onset of leaner times. Banks tightened up credit and in 1990 Congress imposed a luxury tax on any boat whose cost exceeded $100,000. Between 1988 and 1991, sales of powerboats in the United States declined from 524,000 to 278,000 units. At Genmar, revenues fell for the first time in 1989 and in 1990 the company recorded a net loss of $11.7 million.

The slump continued into 1991, forcing many smaller boat manufacturers out of business. Jacobs took advantage of his competitors’ troubles to increase his own holdings. He bought Miramar Marine Corp., based in Pulaski, Wisconsin, by purchasing the company’s junk bonds and becoming its largest creditor. After the company went bankrupt, Jacobs held a 94 percent stake. The acquisition added the Carver and Ranger brand names to Genmar’s lineup. Carver boats, manufactured in Pulaski, were a family of value-priced luxury yachts ranging in length from 32 to 53 feet. Ranger manufactured fiberglass freshwater fishing boats at a plant in Flippin, Arkansas.

Genmar’s sales suffered as dealers began to shrink their inventories. Jacobs refrained from pressuring dealers to buy, since a smaller inventory put the dealers in a good position to eventually take over business from competitors that went under. In the short-term, however, Genmar had to close two plants. Its workforce declined to 2,900 from a maximum of 5,500 in 1988. The company’s main competitors, Brunswick and Outboard Marine, were likewise having to trim their operations. During the rough years of the recession, Jacobs showed his faith in Genmar by turning over some of the profit from his personal dealings to the parent company Minstar.

By 1993 Minstar’s boat-building operations had lost over $100 million and the company had been forced to restructure its debt twice. Adding to the debt, Aquasport Marine Industries was acquired. The company was known for fiberglass fishing boats with such innovations as a center console and a walkaround cubby cabin design. The boats ranged in size from 16 to 27 feet.

Company Perspectives:

Since our beginnings in 1978, Genmar has been pushing the envelope of the boating industry. In addition to building a powerful corporation comprised of some of the world’s most popular boat brands, Genmar has taken a leadership role in manufacturing innovations, most recently championing two new technologies —VEC and Roplene. These radically improve both the boat-building process and the quality of the end product.

It’s not only about building the most and best boats. It’s also about leading the boating industry with innovative manufacturing processes that create a healthier environment.

Prosperity in the Mid-1990s

Genmar’s aggressive acquisition strategy paid off when the boat market improved around 1994. The company recorded its first operating profit in five years, although the company’s net loss was still $21.9 million after factoring in taxes, investment losses, and interest expense. In a confirmation of the potential of the boat manufacturing business, Genmar’s boat-building operations finally took decisive precedence over the remnants of Minstar in 1994. A new private company, Genmar Holdings, Inc., absorbed Minstar and became the parent company for 11 different boat manufacturers. Investors such as the Orlando Magic basketball team and the State of Wisconsin Investment Board contributed $165 million in new equity to finance the enterprise.

Positive developments followed the restructuring. The yacht-builder Hatteras announced plans to hire between 500 and 700 people for its North Carolina plant; and the Miramar plant in Wisconsin, which three years earlier had been bankrupt with zero employees, had boosted its employment to 700 and was still hiring. The luxury tax on high-end boats was also repealed that year. In addition, Genmar struck a deal with Sam’s Club to have the warehouse retailer display Genmar boats and sales brochures and offer special deals to its members.

In 1996 Genmar achieved its first net profit since 1989, earning $275,000 on revenues of $618.1 million. Revenues were up 13 percent from the previous year. The bottom line was helped by lower administrative and manufacturing expenses—Genmar’s workforce had declined from 5,200 in 1995 to 4,900 in 1996. Sales were strongest in the areas of recreational power-boats and yachts.

The following year brought a dispute with the National Marine Manufacturers Association, a group that Jacobs had helped found in the 1970s. Jacobs had watched with displeasure as more and more manufacturers of personal watercraft, such as Jet-Skis, joined the association in the 1980s. Jacobs finally withdrew his companies and his financial support from the organization in 1997, protesting that the group supported the rights of personal watercraft over boats. He announced plans to fight the growth of the personal watercraft sector, saying that the new industry stole customers of traditional boats and that the smaller, louder watercraft disturbed those who wanted to fish or ski on a serene lake.

In December 1998 Genmar acquired Horizon Marine of Junction City, Kansas, makers of Nova boats. Jacobs planned to take advantage of the acquisition of a new factory to boost production of aluminum boats. The plants in Little Falls and New York Mills, Minnesota, and the facility in Ontario, Canada, where Lund, Crestliner, and Ranger boats were being manufactured, were operating at full capacity. The acquisition allowed Genmar to free up production potential by transferring the manufacture of Ranger boats to the Kansas facility.

New Technology for the New Millennium

Another acquisition followed in 1999. Logic Marine Inc., based in North Carolina, was bought from Pacific Resources Group (PRG), an Indonesian conglomerate that had started the firm five years previously. The Indonesian recession had pressured PRG into downsizing Logic, despite the fact that the manufacturer produced a quality line of mid-level fishing and skiing boats using a clean, strong new technology. Genmar now acquired this new manufacturing technique, known as Roplene. The Roplene method involved injecting a polyethylene resin, which was naturally buoyant and had five times the strength of fiberglass, into a mold and then rocking the mold during the hardening process to produce an even, seamless hull. Now that Logic was part of the Genmar domain, the company planned to add 20 employees and triple its output to about 220 boats per year.

Jacobs considered an initial public offering for Genmar in August 1999, but formally withdrew the idea in December in light of the possibilities offered by a second new manufacturing technique. The technology was known as VEC, short for virtual engineered composites. The process had been developed in Pennsylvania by Gene Kirila and Bob McCollum under the name Pyramid Operating Systems Inc. VEC was an automated fiberglass molding process that could be remotely controlled via the Internet. Each VEC cell was a portable mini-factory that used a chemical molding process to create a shape predetermined by computer input.

Jacobs recognized the potential for such a flexible and efficient manufacturing process in 1998, when he began to provide Kirila with financial backing to develop the VEC technology. An experimental plant began producing boats with VEC in Little Falls, where the great advantages of the new method were evident. Instead of a plant filled with the stench of styrene, where workers in protective gear swabbed sheets of fiberglass inside molds and used hand-held power tools to sand the hulls into shape, computer-controlled machines handled most aspects of production. The new method took up less space, required considerably less hardening and curing time, and injected less pollution into the air. Because hulls produced with the VEC technology were higher quality than those produced using the traditional method, Genmar was able to offer a lifetime warranty on newly purchased boats and a one-year, rather than 90-day, cosmetic warranty on cracks and bubbles. In 2000 a 100,000-square-foot VEC production facility was unveiled in Little Falls, with the potential for producing 10,000 boats a year.

Key Dates:

1978:: Irwin Jacobs buys a 25 percent controlling stake in Arctic Enterprises, Inc., a Minnesota snowmobile manufacturer and maker of Larson and Lund boats.
1981:: Minstar emerges from the bankrupt Arctic Enterprises.
1986:: Genmar Industries, Inc., with four powerboat brands, is spun off from Minstar.
1989:: Revenues fall as sales of powerboats decline.
1994:: Genmar Holdings, Inc. becomes the parent company of Minstar.
1996:: Genmar attains its first net profit since 1989.
2000:: Company opens major Little Falls facility that employs new VEC technology.

Genmar was in a position to expand further in 2000, as sales revenue hit a record high of $858 million with an operating profit of $61 million. An opportunity presented itself when Genmar’s longtime competitor, Outboard Marine Corporation, went bankrupt. In 2001 Genmar purchased Outboard Marine’s boat-making division. The acquisition brought in the Javelin, Four Winns, Stratos, Hydra-Sports, Seaswirl, and Lowe boat lines. Outboard Marine’s Evinrude and Johnson engine brands, which Genmar used on many of its own boats, were bought by the Canadian manufacturer Bombardier Inc. Jacobs announced plans to restart Outboard’s manufacturing operations and recall many laid-off workers. With 18 boat brands and an estimated 20 percent market share, Genmar overtook Brunswick Corporation to become the country’s leading boatmaker.

A minor scandal hit the company in March 2001 when Gary Schultz, the former chief financial officer of the Lund Boat Co., was charged with the theft of $1.8 million from the boat manufacturer. He was suspected of having embezzled as much as $12 million over the course of 16 years. Federal investigators took over the case.

In October 2001 Genmar made its first downsizing move in several years. The company agreed to sell Hatteras Yachts Inc. to Brunswick for $80 million. Brunswick also announced plans to trim some jobs. The deal left Genmar with 17 brands of boats. With a broad product line and control over the promising Roplene and VEC production methods, the company expected to continue in its position as a leader in the boat manufacturing industry.

Principal Subsidiaries

Genmar Canada; Genmar International.

Principal Divisions

Aquasport; Carver; Crestliner; Glastron; Larson; Logic Marine; Lund; Nova; Ranger; Trojan; Wellcraft; Four Winns; Hydra-Sports; Javelin; Lowe; Seaswirl; Stratos.