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Old 08-02-2018, 17:20   #46
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Re: Oyster in liquidation

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Originally Posted by robert sailor View Post
Keels falling off does not instill confidence in the quality of the build but they fell off Beneteaus and Bavaria's..rudder failures on Beneteaus also happened but that hasn't stopped people from buying them so I'm not so sure that this is what is behind their failure but as others have said..boat builders come and go..not an easy business..
this difference is that there beneteau and bavaria, no matter how much they try to bill themselves as such are not bespoke yacht builders. and the kind of clientele that buy true high end yachts like oysters or swans aren't willing to look past that kind of a failure. where as a lot of the people buying beneteau or bavaria are more willing to either steer clear of models that have had those issues or are willing to make the necessary fixed to those models if they buy one insted of not buying that brand all together. if it sounds petty, well, it is. but thats just how the ultra wealthy are when it comes to buying their yachts.
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Old 08-02-2018, 18:35   #47
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Re: Oyster in liquidation

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this difference is that there beneteau and bavaria, no matter how much they try to bill themselves as such are not bespoke yacht builders. and the kind of clientele that buy true high end yachts like oysters or swans aren't willing to look past that kind of a failure. where as a lot of the people buying beneteau or bavaria are more willing to either steer clear of models that have had those issues or are willing to make the necessary fixed to those models if they buy one insted of not buying that brand all together. if it sounds petty, well, it is. but thats just how the ultra wealthy are when it comes to buying their yachts.
I get your point, folks with deep pockets could hardly stand hearing a story of a keel falling off a boat built by the same builder that they chose to go with...that I get. Not sure why it doesn't have similar effects with budget buyers but hey..whatever works
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Old 08-02-2018, 18:43   #48
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Re: Oyster in liquidation

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This is just another example of private equity destroying a great company. These firms exist to do financial engineering. They reduc costs by cutting staff and quality — to increase cash flow. This inevitably leads to problems like keels falling off.



.


With all due respect, if PE funds exist to "inevitably" cut corners leading to fatal problems like keels falling off, how do you think they ever sell their investment for a profit?

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They also load the company balance sheet with bank debt to pay themselves a dividend to get their original investment back quickly. Then, if the company doesn’t perform as expected they “exit” (that’s really what they call it) by flipping it to another PE firm (as happened to Oyster a while back) or cutting off the cash and let it fold.
I'm sorry but this understanding is incorrect. Would you lend money to a company if the owners then simply paid themselves a dividend leaving the company on the lurch of bankruptcy (with bankruptcy wiping out the creditors)? I didn't think so, and nor would sophisticated lenders like investment banks. The loan covenants would never allow that.

The correct answer is that they increase cash flows to pay back the large loans that they took quickly. Because every dollar of debt payback is value accretive. This is the "financial engineering" you speak off. Why it's value accretive is difficult to understand without doing some excel modeling yourself. But by paying back the debt you effectively own more of the company despite not having paid for all of it yourself (this is a gross generalization).

I'm not the biggest fan of PE. Nowadays it's mostly done with the hope of getting a bigger multiple upon sale. When it's done well with a focus on operational improvements it can be quite positive for everyone, especially the entrepreneurs that can get a liquidity event for their hard earned efforts of building a company.

But PE bashing based on an incorrect understanding isn't helpful for anyone.

My 2 cents...
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Old 08-02-2018, 18:55   #49
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Re: Oyster in liquidation

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I get your point, folks with deep pockets could hardly stand hearing a story of a keel falling off a boat built by the same builder that they chose to go with...that I get. Not sure why it doesn't have similar effects with budget buyers but hey..whatever works
A lot of it stems from a lack of understanding of boats/boatbuilding on the part of the ultra wealthy shopping around for a yacht where they don't get that one boat having even a major structural failure doesn't mean every boat thatr builder produces is bad. the other thing is that in the realm of high end yachts reputation is just as important as the actual build of the boat. again, petty I know but remember that for most yacht owners the boat is a bragging piece just as much as anything else. sigh, as I type this I sit here typing this i[m wondering why I've spent so many seasons working yachts...
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Old 08-02-2018, 23:37   #50
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Re: Oyster in liquidation

...a keel falling off a Beneteau after hard groundings or off an Oyster all by itself are hardly the same thing...
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Old 09-02-2018, 03:38   #51
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Re: Oyster in liquidation

Surf Side I had the same impressions about PE firms as you until I saw it in action when my company was bought. For me, it worked out very well and not all PE deals go bad - but many do.

It is standard practice for PE firms to borrow money to pay themselves a dividend. Their Limited Partners expect it. Banks lend the money because at the time the company meets the lending standards, the banks are in the business of lending money, and PE firms are a huge part of bank business. Here’s a link of how the practice is particularly common in Europe right now
https://www.reuters.com/article/priv...-idUSL8N1J41JK

You’re right that PE firms are looking to sell based on a price multiple but this is always a multiple of EBITDA (Earnings before interest, taxes, debt) So high interest costs don’t reduce the sale price.

And “cutting corners” is a matter of perspective but cutting costs to increase margins has got to come out of something. One man’s “waste” is another’s “passion for excellence” Oyster went 40 years under Matthews without a keel falling off (I believe) yet in less than 10 years under PE it happened on a brand new boat.

I’m going on a bit here because there’s obvious confusion on this board about how Oyster could go under with 80 million of orders. The reason is almost certainly interest costs in the face of probable litigation over the keel. When the first PE company (Balmoral) flipped Oyster to the Dutch PE firm you can be sure they didn’t take the loss implied by selling a 70 million purchase (of which half was probably debt) for 15 million. They would have held on longer if that was the case. Most likely, they used debt to pay a dividend to themselves to at least break even. In the same manner, it’s likely that the Dutch firm had done the same to get their money back.

While not many boat builders attact PE ownership, many marine equipment and marine equipment companies today are PE owned. I always check before buying.

Even if Oyster restarts, the current Oyster warranties are worth nothing now.
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Old 09-02-2018, 03:46   #52
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Re: Oyster in liquidation

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They used to build boats right, the later ones might have a slight issue where the keel seems to fall off.....


OK, only one, and in 2015. But that's one too many and the pics of that incident look like shoddy build was the cause. Have any keels fallen off a Hanse 575?

I love the look of Oyster yachts, always lusted after one until the 2015 issue was in the press (pure dreaming I'll never be in a position to buy one). Maybe a lot of other people felt the same though.
Quite right
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Old 09-02-2018, 08:37   #53
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Re: Oyster in liquidation

To the person working the tools building the yacht, it's their life. To PE it's all "Monopoly Money." "Should have sat in my chair, rather than your pride and sweat.!"
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Old 09-02-2018, 12:50   #54
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Re: Oyster in liquidation

Even though Oyster only made one or two yachts using these very questionable techniques, it shows that their whiz kid engineers were not averse to experimenting with unproven systems using OPM.
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Old 09-02-2018, 21:33   #55
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Re: Oyster in liquidation

There is still some confusion here on how the PE model works.

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Originally Posted by CarlF View Post
Surf Side I had the same impressions about PE firms as you until I saw it in action when my company was bought. For me, it worked out very well and not all PE deals go bad - but many do.
You seem to think the PE guys can someone walk away earning big bucks if the company goes under. There may have been unique deals where this happened but it's far from the norm. So the correct statement would be "some" not "many" deals go bad, otherwise PE (LBO) funds wouldn't have positive returns.

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Originally Posted by CarlF View Post



It is standard practice for PE firms to borrow money to pay themselves a dividend. Their Limited Partners expect it.
.

Actually this isn't standard practice. LPs typically have their capital held up for the duration of the fund. Usually around 7 years.

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Banks lend the money because at the time the company meets the lending standards, the banks are in the business of lending money, and PE firms are a huge part of bank business.
.
Corporate debt deals don't work like your mortgage where the loan is issued based on financial conditions at the time of issuance and as long as you make payments no questions are asked. Corporate debt issuance will include covenants (like minimum interest coverage ratios, etc.) where if the covenants get breached the loan is callable immediately. So you can't pull a fast one on the bankers (who aren't that dumb) by showing them one cash flow statement and then later paying a big dividend depriving the company of cash.


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Originally Posted by CarlF View Post
Here’s a link of how the practice is particularly common in Europe right now

https://www.reuters.com/article/priv...-idUSL8N1J41JK



.
I'm sorry you misunderstood the article. This isn't implying that the dividends/recap left the company in precarious financial condition (in fact the article implies as much)

What's happening with these recaps is a bit unique as it's not "standard" practice (hence the article). In Europe, thanks to the ECB corporate debt had become ridiculously cheap. In fact there are now sub AAA rated corporates with negative yields on their debt.

Since debt has become so cheap PE firms naturally say "wait a minute why are we still paying such high interest on these older debt issuances". So they go renegotiate or find new bankers to issue debt at lower rates. Now since they've already paid of some of the old debt and because EBITDA has potentially improved they can take out a larger loan than the remaining principal due on the old loan. The difference can now be paid as a dividend. But what likely didn't happen is that the debt/equity and interest coverage ratios are materially different than when the old loan was originally issued. Why would the new lenders issue a loan where the company is likely to go Into default thereafter. If rates hadn't declined so much this wouldn't be happening....


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Originally Posted by CarlF View Post
You’re right that PE firms are looking to sell based on a price multiple but this is always a multiple of EBITDA (Earnings before interest, taxes, debt) So high interest costs don’t reduce the sale price.



And “cutting corners” is a matter of perspective but cutting costs to increase margins has got to come out of something. One man’s “waste” is another’s “passion for excellence” Oyster went 40 years under Matthews without a keel falling off (I believe) yet in less than 10 years under PE it happened on a brand new boat.
What you say about multiples/EBITDA is correct.

Again there is no incentive for PE shops to cut waste to the point it ruins the brand. I'm sure mistakes were made, but it's not because they wanted to ruin the company but likely market completion forced them to become ruthless on cost in order to survive (more on that later)

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Originally Posted by CarlF View Post

I’m going on a bit here because there’s obvious confusion on this board about how Oyster could go under with 80 million of orders. The reason is almost certainly interest costs in the face of probable litigation over the keel.
It highly likely wasn't because of interest payments since as mentioned before European corporates are currently paying close to 0% on their debt. More likely Oyster didn't have the scale advantages to compete on cost versus Beneteau Group. If rich consumers no longer really want solidly built boat versus a flashy bene or catamaran then it's really hard for Oyster to have a price premium. 80 mio in orders don't mean anything if you lose money on every boat. The keel loss certainly didn't help.

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Originally Posted by CarlF View Post

When the first PE company (Balmoral) flipped Oyster to the Dutch PE firm you can be sure they didn’t take the loss implied by selling a 70 million purchase (of which half was probably debt) for 15 million. They would have held on longer if that was the case. Most likely, they used debt to pay a dividend to themselves to at least break even. In the same manner, it’s likely that the Dutch firm had done the same to get their money back.

Really? How would they have held on longer? The LPs will want their exit. The only option would be to open another fund to keep it.

I'm sure they lost money. If you think PE guys always win no matter what you should really be looking to become an LP.
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Old 09-02-2018, 23:32   #56
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Re: Oyster in liquidation

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Originally Posted by surf_sail View Post
There is still some confusion here on how the PE model works.

You seem to think the PE guys can someone walk away earning big bucks if the company goes under. There may have been unique deals where this happened but it's far from the norm. So the correct statement would be "some" not "many" deals go bad, otherwise PE (LBO) funds wouldn't have positive returns.

Actually this isn't standard practice. LPs typically have their capital held up for the duration of the fund. Usually around 7 years.

Corporate debt deals don't work like your mortgage where the loan is issued based on financial conditions at the time of issuance and as long as you make payments no questions are asked. Corporate debt issuance will include covenants (like minimum interest coverage ratios, etc.) where if the covenants get breached the loan is callable immediately. So you can't pull a fast one on the bankers (who aren't that dumb) by showing them one cash flow statement and then later paying a big dividend depriving the company of cash.

I'm sorry you misunderstood the article. This isn't implying that the dividends/recap left the company in precarious financial condition (in fact the article implies as much)

What's happening with these recaps is a bit unique as it's not "standard" practice (hence the article). In Europe, thanks to the ECB corporate debt had become ridiculously cheap. In fact there are now sub AAA rated corporates with negative yields on their debt.

Since debt has become so cheap PE firms naturally say "wait a minute why are we still paying such high interest on these older debt issuances". So they go renegotiate or find new bankers to issue debt at lower rates. Now since they've already paid of some of the old debt and because EBITDA has potentially improved they can take out a larger loan than the remaining principal due on the old loan. The difference can now be paid as a dividend. But what likely didn't happen is that the debt/equity and interest coverage ratios are materially different than when the old loan was originally issued. Why would the new lenders issue a loan where the company is likely to go Into default thereafter. If rates hadn't declined so much this wouldn't be happening....

What you say about multiples/EBITDA is correct.

Again there is no incentive for PE shops to cut waste to the point it ruins the brand. I'm sure mistakes were made, but it's not because they wanted to ruin the company but likely market completion forced them to become ruthless on cost in order to survive (more on that later)

It highly likely wasn't because of interest payments since as mentioned before European corporates are currently paying close to 0% on their debt. More likely Oyster didn't have the scale advantages to compete on cost versus Beneteau Group. If rich consumers no longer really want solidly built boat versus a flashy bene or catamaran then it's really hard for Oyster to have a price premium. 80 mio in orders don't mean anything if you lose money on every boat. The keel loss certainly didn't help.

Really? How would they have held on longer? The LPs will want their exit. The only option would be to open another fund to keep it.

I'm sure they lost money. If you think PE guys always win no matter what you should really be looking to become an LP.
Thank you for a breath of common sense. Too many get caught in the media's class warfare and movies that have only the faintest relationship to reality and think it's standard business practice.

Yeah, there are some odd outlying cases but if someone thinks the banks lose millions and don't learn from their mistakes, they are crazy.

If investors can go in, strip the company of it's assets, dump it and make a profit...the company was probably one the way out already. If anything they may have delayed the inevitable.

A high priced builder building boats that are no longer popular is not a great business plan and 99% of those lamenting the passing never had any intention of buying a new one.
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Old 12-02-2018, 01:09   #57
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Re: Oyster in liquidation

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Thank you for a breath of common sense. Too many get caught in the media's class warfare and movies that have only the faintest relationship to reality and think it's standard business practice.

Yeah, there are some odd outlying cases but if someone thinks the banks lose millions and don't learn from their mistakes, they are crazy.

If investors can go in, strip the company of it's assets, dump it and make a profit...the company was probably one the way out already. If anything they may have delayed the inevitable.

A high priced builder building boats that are no longer popular is not a great business plan and 99% of those lamenting the passing never had any intention of buying a new one.

This. Also, I would know...I've worked in the field. Surf_sail seems to know the details (and some of the interesting bits about the EU situation with bond yields) relatively well.

Sad news for Oyster, the employees, etc. I've been intrigued by the 595, and it was on my "to look at" list, although price would likely have tipped me toward something else. I do hope to see someone step in, keep the branding, and fix the PR issues and QC issues that have cropped up. Some openness from the company, and an outright rejection of cutting corners and using sloppy build techniques, would help.
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Old 13-02-2018, 23:59   #58
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Re: Oyster in liquidation

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What was the target audience for Oyster?
Primarily: self-made entrepreneurs who had sold their businesses and were looking for a cruising boat that could comfortably accommodate a family of 4-6 but required only one or two (extra) crew.

Oysters have long been the 'safe' bet for such folks: conservative styling, excellent built quality, functional layout, and (perhaps most importantly) world-class customer support, including top-notch after-sales service.

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It sucks for the workers but I'd be shocked if most didn't see it coming.
Perhaps. Oyster had layoffs in 2012, and the 2015 Polina Star III situation certainly hasn't helped. But human nature being what it is, most of the labour force probably just hoped for the best.


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I do hope to see someone step in, keep the branding, and fix the PR issues and QC issues that have cropped up. Some openness from the company, and an outright rejection of cutting corners and using sloppy build techniques, would help.
Yes.
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Old 14-02-2018, 01:03   #59
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Re: Oyster in liquidation

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Primarily: self-made entrepreneurs who had sold their businesses and were looking for a cruising boat that could comfortably accommodate a family of 4-6 but required only one or two (extra) crew.
That's a pretty small slice of the market to hang your hat on

Oysters have long been the 'safe' bet for such folks: conservative styling, excellent built quality, functional layout, and (perhaps most importantly) world-class customer support, including top-notch after-sales service.
Sounds like the same reason a lot of luxury brands go down.
They were living off history and reputation more than innovating. When the target market dies off, the younger crowd doesn't buy into the history.

Look at Cadilac. They started as high performance cars but by the 70's they were bloated monstrosities living off history mostly bought by old folks. It only got worse thru the mid 90's. They are better now (not great) but most of the improvement is because they stopped trying to be what they were 30-40yrs ago.


Perhaps. Oyster had layoffs in 2012, and the 2015 Polina Star III situation certainly hasn't helped. But human nature being what it is, most of the labour force probably just hoped for the best.
I agree that people often bury their heads in the sand but if you do that, you lose a lot of sympathy when the expected happens.
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Old 14-02-2018, 11:17   #60
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Re: Oyster in liquidation

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Keels falling off does not instill confidence in the quality of the build but they fell off Beneteaus and Bavaria's..rudder failures on Beneteaus also happened but that hasn't stopped people from buying them so I'm not so sure that this is what is behind their failure but as others have said..boat builders come and go..not an easy business..
There is a big diference on a keel that fell without the boat being grounded after just one year of use and a keel that fell after one or several hard groundings (not having been properly repaired) and more than a decade of hard use.

The oyster that lost the keel, according to the skipper, was never grounded.

Another big difference regards a keel falling on a model that has only 4 or 5 on the water or a keel falling on a model that has 550 boats built and on the water, not having almost all of the other 550 any significant problem.

The only vaguely similar case was the one with the Bavaria Match 42 where only one keel was lost but where it was discovered that there was several boats with problems. Like on the Oyster the company assumed that there was a design problem, all the boats were called in and reinforced.

Bavaria finished almost immediately with that line (performance cruisers) kind of saying to the clients that the fault was on lighter cruiser racers type of built, and they increased the weight on their cruising line making it substantially heavier then the French boats and when asked why they said that they wanted to favor safety over speed.

That kind of assurance seems to have worked regarding the market. Also the fact that keels were not felling on the many thousands cruising Bavarias was an important factor.

If Oyster had made a similar move, stating that now the boats would be heavier and that they would increase boat safety, maybe they could have got away with it but they never dealt well with the accident, starting with the client.

If they had given him a new boat that pictures would never had been taken and they could have maintained credibility. Credibility is very important for a boat builder even more for one that sells boats that cost several millions.
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