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Old 14-10-2009, 08:02   #31
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We don't know if the figures quoted above are accurate but even if they are. Both sales were far more conservative than the requirements for buying a house.
One of the fundamental reasons for our financial grief is changing the requirements for mortgage lending.
The yard has a lot of service work and has a good chance of survival with just a slight uptick in new sales.
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Old 14-10-2009, 11:11   #32
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A slightly different view.
Maine's Boatbuilding Industry Poised for a Rebound
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Old 14-10-2009, 12:26   #33
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The Hinckley family didn't 'make' $19 million on their deal. What's the value of 2 generations of family investment in the family business? What's the value assigned of taking a pay cut so your business can survive a downturn? What the Hinckley's probably received for their trouble was little more than a deferred paycheck.

However, for the sake of this discussion, they made $19 million and the next flip made $20 million. Investors walked away with $39 million in profit in the two deals.

Now the firm is in BK and all assets are liquefied. If they're lucky, assets more than offset the debt and this group of investors breaks even. If, on they other hand, they're not lucky, they lose the $40 million investment. In this case, the entire process of capitalism is a game of justifying profit without adding value. It results in a net sum of zero. However, in either case this process has left the company in ruins, a valued brand name disappears, and most employees will lose their jobs.

I have to ask the question. Is this what Harvard "B" school teaches these days?

No wonder our economy is tanking.

I have fond memories of Southwest Harbor,Me, having spent a part of my youth carousing between there and Bar Harbor. I hope this community fairs well.
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Old 14-10-2009, 12:50   #34
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Originally Posted by Tropic Cat View Post
The Hinckley family didn't 'make' $19 million on their deal. What's the value of 2 generations of family investment in the family business? What's the value assigned of taking a pay cut so your business can survive a downturn? What the Hinckley's probably received for their trouble was little more than a deferred paycheck.

However, for the sake of this discussion, they made $19 million and the next flip made $20 million. Investors walked away with $39 million in profit in the two deals.

Now the firm is in BK and all assets are liquefied. If they're lucky, assets offset the debt and this group of investors breaks even. If, on they other hand, they're not lucky, they lose the $40 million investment. In this case, the entire process of capitalism is a game of justifying profit without adding value. It results in a net sum of zero. However, in either case this process has left the company in ruins, a valued brand name disappears, and most employees will lose their jobs.

I have to ask the question. Is this what Harvard "B" school teaches these days?

No wonder our economy is tanking.
This post "cuts right to the heart of the matter." Well-stated, TC.

Oh, BTW, it has been stated a couple of times that the Hinckleys made $19million on the $20million sale of their company. The assumption seems to be that they had to "give back" $1million because that was the outstanding debt on the books at the time of the sale.

That's not the way these things work, more often than not. The entity that bought the firm for $20million assumed the debt along with the corporate assets. In effect, their $5million capital contribution zeros out the existing debt, but the liquid assets of the company are now a +$4million, and their lender provides the $15million balance. The Hinckleys would receive the full $20million price they agreed to accept.

When the first private equity owner, in turn, sold the company to the next private equity group for $40million, it's entirely possible that the $15million debt was assumed by the new owner(s). In other words, it's possible that the first private equity group owner of Hinckley Yachts made $35million profit on its $5million capital contribution. Nice ROI, and far better than what the Hinckleys received for their many years of diligent effort.

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Old 14-10-2009, 13:09   #35
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In this case, the entire process of capitalism is a game of justifying profit without adding value. It results in a net sum of zero.
I'll guarantee that was not the intent of the buyers. The first buyers probably increased debt to finance the tremendous expansion of the company - purchasing Little Harbor plus other boatyards, building the Jet Boat plant in Trenton, etc. They sold the company for more because they had added value, the company was bigger and worth more. The Little Harbor facility in Portsmouth, for example, is much larger by itself than the original Hinckley yard in Maine, and has an actual marina.

The second group of buyers obviously had a vision to take the company to a next level, that of a "Luxury Lifestyle Franchise" for lack of a better term, but there's a big difference between vision and execution, and the economic meltdown certainly hasn't made executing growth in the luxury sector any easier. Their challenge now is to find a common ground between corporate, private equity ownership and ambition, and the expectations of Hinckley customers who have become used to and expect a certain level of service. I certainly wish them luck, because SW Harbor and Portsmouth are truly terrific service yards.
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Old 16-10-2009, 12:54   #36
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In this case, the entire process of capitalism is a game of justifying profit without adding value. It results in a net sum of zero. However, in either case this process has left the company in ruins, a valued brand name disappears, and most employees will lose their jobs.
Me thinks you overstated your case, however well articulated.

This case is most unfortunate because the most recent buyer loaded more debt than what the business could bear during an economic downturn. The unstated argument is that, had the buyer used out-of-pocket funds to purchase, they could have kept the business out of a liquidation scenario by downsizing.

But so what. Even in downsizing mode, many if not most of the employees would have STILL lost their jobs. The leverage buyout is a cause for some of the employees to lose their jobs, but certainly not all and most probably not even most. It is the economic downturn that is the prime mover for the job losses. The debt leverage magnified the job loss, for sure, but no more. To characterize debt leverage as a prime mover is erroneous.

OTOH, to prohibit the use of leveraged funds for buyouts inevitably will cost society much more than permitting said use. It's all about choosing the lesser of two evils. Creating transactional friction poses real costs to society, as many a third world country can attest. This country has been without that type of transactional friction so long that the average guy on the street has no clue what that might entail.

For example, put yourself in the Hinckley family's shoes. Would the family had even been able to sell their business if no buyer was able to borrow funds to cash them out? Would the Hinckley have had to offer seller financing and therefore expose themselves to a buyer default in a faltering economy? This type of transaction friction can present huge hurdles that can seriously hamstring the overall economy, not to mention cripple sellers trying to retire out of their business.

How many people would be willing to undertake the very real and numerous risks that come with starting a business if they know that retirement is highly unlikely because most buyers simply can't access funds necesary to cash them out, that seller financing is the order of the day (a scenario whereby the retiring seller still has all the risks inherent in running a business but no meaningful managerial power to protect their retirement cash flow). You start putting in place these kinds of frictions in your economy and pretty soon the engine that created these jobs on the first place starts to go to sleep.

Be very careful what you wish for.
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Old 16-10-2009, 13:14   #37
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The unstated argument is that, had the buyer used out-of-pocket funds to purchase, they could have kept the business out of a liquidation scenario by downsizing.
Either that, or the unstated argument is that the seller should have not been permitted to sell at all, an even more radical impulse.

The point being, when you get past the complaining stage and start reviewing what type of system replaces the current one, you inevitably find that history underscores what kind of needle you are trying to thread, because it's all been tried before--usually with less than satisfactory results.
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Old 16-10-2009, 13:45   #38
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And finally, let me point out the obvious. If there are X number of boats in a region that need maintenance and repair, and it takes Z number of laborers to service that need, then the number employers who divy up that business (and therefore divy up the labor pool to provide that service) is of no real import. If one employer goes belly up and there are boat owner needs that are then being unmet, the remaining businesses will experience some growth and require more employees. At the employee level, there will be some temporary dislocation but the over all need for their services has remained the same because the demand is the same.

The real driver in this type of market is not the employers. It's the boat users. At the end of the day, they will determine how many employees are necessary to service their needs. The number and nature of companies employing such employees is form, not substance.

And if those employees lose their high paying jobs and end up providing the same service at lower compensation, then at a fundamental level it is the boat users demanding that kind of change. Employers are just the unwitting middle man conveying an unpleasant message.

Not too unlike all the family owned hardward stores that Home Depot has 'caused' to go out of business. Right. Like Home Depot forces people to shop only at Home Depot.

* * *

Here's the catch: Change is the rule.

Repeat: Change is the rule.

Capitalism facilitates change (good and bad change) more efficiently than any other system. The value judgment in all this is your feelings about change. That, of course, is highly contextual.

In this case, Hinckley was a boating icon nobody is happy to see go, me included. There is a 1960s Hinckley for sale down the street. She is, without a doubt, one of the best knockouts I've ever had the pleasure laying eyes on. It truly is a crime that nobody is making them like that any more. For Hinckley to go belly up is like a stake in the heart. I think it says something unflattering about us.
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Old 17-10-2009, 08:05   #39
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You guys may be jumping ahead here. Hinckley has a great service buisiness and that is still there. The new boat building end is hurting and the service end is carrying more than they deserve.
My take on this is, the boats will survive, the service yards will survive, new Hinckley boats will be built and the name will survive.
The wheeler dealers that own it? Who knows?
The company has made major changes and cut custs. The issue is whether the owners have the patience and resources to wait out the bad times.
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Old 17-10-2009, 10:17   #40
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You guys may be jumping ahead here. Hinckley has a great service buisiness and that is still there. The new boat building end is hurting and the service end is carrying more than they deserve.
My take on this is, the boats will survive, the service yards will survive, new Hinckley boats will be built and the name will survive.
Without a doubt, those aspects of Hinckley Yachts that you mention are valuable, Highlander40, and, hopefully, they will retain that value going forward. The Hinckley brand and the years of accumulated goodwill are quite valuable.

What cannot be overlooked, however, is that the current ownership has tried to leverage those valuable aspects into a much grander business concept, borrowing heavily to construct that larger vision. The current economic collapse, however, has revealed that vision to be untimely, at the very least, and servicing the heavy debt burden is difficult - perhaps even impossible.

The successful parts of the business now have to carry the less successful and even unsuccessful parts of the business. Servicing and storing vessels, and even new vessel sales, which at one time were easily servicing $1million of debt, are now compelled to service $30-40million of debt.

What's wrong with this picture?

Because the successful parts of the business can't be expected to carry such a load, management is forced to cut costs. That may seem logical, even obvious, but all too often it results in cutting corners. Most affected, probably, will be the building of new vessels, but management will severely thin the ranks of the boat-building and service personnel, first. Before too long, the Hinckley reputation will begin to suffer, the brand will be tarnished and goodwill will begin to evaporate.

Then, management will try to sell off the entire business to escape the unbearable pressure and stress that comes with having one's testicles in a "debt-vise." If that proves unsuccessful, the next step will be to offer the individual aspects of the business that still retain value, like storage and service or new vessel construction. Pieces of infrastructure and land deemed unnecessary will be offered for sale.

This "death by a thousand cuts" will continue until there is very little of real value remaining. Bankruptcy follows and whatever is left will be liquidated.

Hopefully, if things unfold as outlined above, and the Hinckley family wishes to salvage the boat-building and storage/service aspects of the business to protect their name and brand, they will be serious bidders for those parts of the business. They should be able to purchase those items with no more than $5-10million of the $20million they received initially.

It will be interesting to see how it all plays out, but I don't see the current ownership ever being able to make a silk purse out of this sow's ear, given the current economic realities.

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Old 17-10-2009, 12:18   #41
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I agree with your well stated observations, TaoJones. The thing about leverage (Other People's Money) is that you can use it to magnify your return on investment compared to out-of-pocket ROI. In fact, that's the whole point.

But any purchase, no matter how structured, is a bet. It's a bet that what you bought will remain the same or perhaps you can transform into something even better.

The thing about leverage is that it's a double-edged sword. If the purchase goes sideways on you, leverage will also magnify your losses. It's pretty darn impossible to get something for nothing. Leverage offers greater potential profits--at much greater risk.

This is an old lesson people are always relearning, sort of like the criminal who assumes he will never get caught. Master-of-the-Universe complex, which IS taught at the leading business schools. Unfortunately, the Hinckley brand/icon is probably going to be a casualty in this lesson, even if the Hinckley business survives.
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