West Marine Restructures Debt

[Letterkenny]

Originally Posted by Lateral Hazard

Just imagine, you decide to sell your large business to a private equity firm. They give you, and your investors 1 billion dollars to sell.
When the deal is consummated the private equity group has to pay staff and partners and investors a generous profit. They immediately get a mortgage on West Marine for 1.5 billion dollars to pay back its costs and return it to partners and investors.
They get their money back and more as well as saddling West Marine with paying the 1.5 million mortgage. P/E does not care as if they default on the payments theP/E firm has them declare bankruptcy. I cannot believe people do not understand this.

That’s not actually how it will work. If the purchase price for the entity was $1B, no bank is going to give them $1.5B of debt until they can prove increased valuations which doesn’t happen right away. The PE wants fund ROI and financing the deal off the getgo with debt is the way to leverage this. They likely will want a liquidity event such as another sale of IPO but can tell you the retail space isn’t the place you can try to pull out money from a recently closed deal especially if they weren’t public and undervalued before. In real estate, yes that can be easy to do and I work with shops that have pulled this strategy but I have also worked with plenty of PE owned consumer goods oriented brands and the PE shop is to increase key metrics for a liquidity event, fund the transaction with debt, get the portfolio company to be able to service the debt, and then the debt gets repaid upon a sale to a new PE or via an IPO.

[CaptTom]

I learn something new here every day.

It's good to know more about how these deals work behind the scenes. What I am sure of, however, is that the customers (and employees) never benefit. One way or another, it's a direct transfer of value to the PE firm. Whether it's by slashing costs, pillaging assets or complex financing, the result is the same.

A successful business is developed over time by providing the customer with a better value than the competition. It's destroyed by changing the focus from doing what's best for the customers, to benefiting only the stockholders.

[danstanford]

Originally Posted by CaptTom

I learn something new here every day.

It's good to know more about how these deals work behind the scenes. What I am sure of, however, is that the customers (and employees) never benefit. One way or another, it's a direct transfer of value to the PE firm. Whether it's by slashing costs, pillaging assets or complex financing, the result is the same.

A successful business is developed over time by providing the customer with a better value than the competition. It's destroyed by changing the focus from doing what's best for the customers, to benefiting only the stockholders.

Lofty mission statements aside, companies exist for the benefit of their shareholders. Finding ways to have their customers and employees also benefit is the secret sauce to longevity.

[CaptTom]

Originally Posted by danstanford

Lofty mission statements aside, companies exist for the benefit of their shareholders. Finding ways to have their customers and employees also benefit is the secret sauce to longevity.

To my way of thinking, that's backwards.

Companies exist, in the beginning, because a clever entrepreneur found a way to meet a demand. The offered a product or service that people wanted, an a value their customers appreciated. A company founded this way could go on forever, meeting the demands of the market while making a steady income for the owner.

If it's a really good product or service, the business can be expanded. Organic growth is possible, but sometimes more capital is needed. One way to get that is to offer stock to investors.

The investors are their because there was a good business model. They are not the reason the company exists. They are not the purpose of the company.

Unlike the sole proprietor who might be satisfied with making a good but steady income, they are typically only interested in short-term growth of their investment. Profitability isn't enough. They need to have a higher return than other investments, or they abandon the company (along with its employees, suppliers and customers.)

[sailingharry]

Originally Posted by CaptTom

To my way of thinking, that's backwards.



Companies exist, in the beginning, because a clever entrepreneur found a way to meet a demand. The offered a product or service that people wanted.

Not quite. The entrepreneur does not usually start a business to meet a demand. He recognizes the demand and starts a business to capitalize on that. As the sole proprietor, he is the sole shareholder and runs the business in a way that maximizes his return. If he's smart and wants it to last until he retires, he keeps that objective in mind.
There are of course some people that start and run a business for the enjoyment and the passion, with little regard for profit.

[danstanford]

Originally Posted by CaptTom

To my way of thinking, that's backwards.

Companies exist, in the beginning, because a clever entrepreneur found a way to meet a demand. The offered a product or service that people wanted, an a value their customers appreciated. A company founded this way could go on forever, meeting the demands of the market while making a steady income for the owner.

If it's a really good product or service, the business can be expanded. Organic growth is possible, but sometimes more capital is needed. One way to get that is to offer stock to investors.

The investors are their because there was a good business model. They are not the reason the company exists. They are not the purpose of the company.

Unlike the sole proprietor who might be satisfied with making a good but steady income, they are typically only interested in short-term growth of their investment. Profitability isn't enough. They need to have a higher return than other investments, or they abandon the company (along with its employees, suppliers and customers.)

Holders of business ownership do exactly what their customers do, what is best for them. Maximizing profit on your investment is analogous to minimizing costs to you as a consumer. We can see that it is better for a community and your fellow citizens to buy products made/sold more locally, even if it costs a bit more than finding the lowest cost item on the shelf or from some online source. We can also see the benefits you point out to the same community if business was done differently, but both parties will act in self interest most often.

Business owners will often whine about being hurt by lower cost suppliers be they manufacturers in a lower cost environment or online stores with no retail presence. Consumers often whine about companies trying to maximize their margins.

[leecea]

It's interesting, if you are so inclined, to read about how business governance models changed to focus on "shareholder primacy".

[jlynker]

Originally Posted by leecea

It's interesting, if you are so inclined, to read about how business governance models changed to focus on "shareholder primacy".

The model in effect here is:
https://en.m.wikipedia.org/wiki/Sports_Authority

[jlynker]

Originally Posted by danstanford

Holders of business ownership do exactly what their customers do, what is best for them. Maximizing profit on your investment is analogous to minimizing costs to you as a consumer. We can see that it is better for a community and your fellow citizens to buy products made/sold more locally, even if it costs a bit more than finding the lowest cost item on the shelf or from some online source. We can also see the benefits you point out to the same community if business was done differently, but both parties will act in self interest most often.

Business owners will often whine about being hurt by lower cost suppliers be they manufacturers in a lower cost environment or online stores with no retail presence. Consumers often whine about companies trying to maximize their margins.

Maximizing profit doesn't always mean satisfying the consumer. Sometimes it means taking loans, filing for bankruptcy leaving debtors, employees & suppliers unpaid & walking away with cash & bad management decisions relative to the intended purpose of the business.

[GordMay]

New York City just passed a law, that corporations have to post earnings statements, in public spaces [to be accessible], like in parks, MTA stations, high-density residential areas...
“And the words of the profits are written on the subway walls and tenement halls.”

[thinwater]

Originally Posted by jlynker

Maximizing profit doesn't always mean satisfying the consumer. Sometimes it means taking loans, filing for bankruptcy leaving debtors, employees & suppliers unpaid & walking away with cash & bad management decisions relative to the intended purpose of the business.

And this.
https://en.m.wikipedia.org/wiki/Retail_apocalypse


We buy a lot more on-line. Obviously, we are on our computers right now.


And then there is this trend. The trend is down, except for the Covid bump. Sailboats are declining more in number, but the dollar size of the market is more level, suggesting more charter boats and larger boats, which means less business for WM. I know I go to chandleries less than I used to.

[GordMay]

Originally Posted by jlynker

Maximizing profit doesn't always mean satisfying the consumer...

Profit-Led Inflation:

For much of the past few decades, any time businesses have seen a jump in their input costs — the amount they pay for things like raw materials, energy and even workers — they were pretty cautious about passing on [that cost into] the prices they charged for goods and services.
Their reasoning was simple: they were afraid of losing customers.

But, in the recent bout of high inflation, corporations haven't been nearly as worried about doing that, as they typically were.

In a speech this summer [1], Christine Lagarde cited data, from the European Central Bank she leads, showing that; for the 20 years leading up to 2022, corporate profits were responsible for about one-third of inflation.
Last year, however, that ratio jumped to two-thirds, which means that despite legitimate increases in their cost of doing business, their take-home share of every consumer dollar effectively doubled.
The scenario described above, is what's known as "profit-led inflation".

A report [2], by the Federal Reserve Bank of Kansas City, calculated that markups increased by 3.4 per cent in the U.S. in 2021 — enough to make them responsible for as much as half the increase in the U.S. inflation rate that year.

In a blog post [3], in late December, U.S. economist Matt Stoller estimated that 60 per cent of U.S. inflation was the result of corporate profiteering, pointing out that the stock market has rewarded companies that have found ways to increase their margins, during the pandemic.

Data from Statistics Canada [4] showing that at one point last year, the cost of a unit of labour had increased by a little more than 10 per cent since the start of the pandemic. The per-unit profit, meanwhile, was up by more than 70 per cent over that same time frame.

[1] Speech by Christine Lagarde June 27, 2003
➥ https://www.ecb.europa.eu/press/key/...4e47c8.en.html

[2] How Much Have Record Corporate Profits Contributed to Recent Inflation?
➥ https://www.kansascityfed.org/resear...ent-inflation/
Full Report ➥ https://www.kansascityfed.org/Econom...EndeBecker.pdf

[3]Corporate Profits Drive 60% of Inflation Increases
➥ https://www.thebignewsletter.com/p/c...0-of-inflation

[4] Profits, Not Wages, Have Driven Canadian Inflation
➥ https://centreforfuturework.ca/2023/...ian-inflation/

[Kettlewell]

And then there is this trend. The trend is down, except for the Covid bump. Sailboats are declining more in number, but the dollar size of the market is more level, suggesting more charter boats and larger boats, which means less business for WM. I know I go to chandleries less than I used to.

Decades ago I attended several conferences where sailing industry leaders bemoaned the decline in sales and all sorts of ideas were floated for what to do about it, but nobody (or almost nobody) followed any of the advice. The result was decades of more of the same from the industry, with predictable results. The basic problem with sailing is that there aren't newcomers coming in to replace the people aging out at the other end. I've been attending boat shows from more than four decades, and in that time they have continually shrunk in size and number. It used to be that you could go to the New York boat show in January and there you would see all the major sailboat manufacturers with a full line of sailboats on display, from sub-20 footers on up to fairly large cruising boats. There were acres of daysailors on display. The same was true in Boston, Newport, Stamford, Annapolis, Fort Lauderdale, Miami, etc. Most of those companies are just gone, and the shows are much smaller on the sailboat side of things. Remember, Newport was originally a sailboat show only--no power, and it took up more space then the current show. You could go there and lots of chandlers were competing for your business: BoatUS, West Marine, Defender, and many others. Now, you're lucky if you can pick up a pair of shoes or a new foul weather jacket from the fashion-oriented displays. I see the same thing on the water and in boatyards in New England. The smaller family cruisers are mostly gone. You used to see lots of 30-40 foot modest boats with mom, dad, and the kids onboard. Now it is almost all retirees on giant cats and expensive boats. I'm sure this has impacted West Marine tremendously, along with the many chandlers that are just gone now.

[GordMay]

Originally Posted by Kettlewell

Decades ago I attended several conferences where sailing industry leaders bemoaned the decline in sales and all sorts of ideas were floated for what to do about it, but nobody (or almost nobody) followed any of the advice. The result was decades of more of the same from the industry, with predictable results. The basic problem with sailing is that there aren't newcomers coming in to replace the people aging out at the other end...

Retaining an existing customer is much cheaper [easier], than acquiring a new customer.

In fact, studies [1] suggest that, depending on the industry you are in, acquiring a new customer can cost five to twenty-five times more, than retaining an old one.

Research [2], done by Frederick Reichheld, shows that increasing customer retention rates by 5%, increases profits by 25% to 95%.

[1] The Value of Keeping the Right Customers
➥ https://hbr.org/2014/10/the-value-of...ight-customers

[2] Prescription for cutting costs
➥ https://media.bain.com/Images/BB_Pre...ting_costs.pdf

[Kettlewell]

Retaining an existing customer is much cheaper [easier], than acquiring a new customer.

Yes, and every sailboat company went for the low-hanging fruit of catering to the high end and letting other people take care of the entry points to the industry. There are many other reasons for the decline too. Yacht Clubs and sailing schools are also in decline with the many distractions and demands on today's youth. I was a member of a little yacht club for a few years that had the typical aging membership, mostly powerboaters. It was interesting to look through the club archives and see that many decades ago the club was mostly sail, with a robust racing and training program. Today it is mostly a social club with retirees sitting on their powerboats watching the sunset from the docks.