Island Capital Group LLC Issues Open Letter to Shareholders of MarineMax, Inc.
Island Capital Group (ICG) has issued an open letter to MarineMax, Inc. (NYSE: HZO) shareholders.
ICG's Andrew L. Farkas criticizes MarineMax's handling of IGY, a company ICG sold to MarineMax in 2022.
Key issues cited include reduced fiscal year 2024 guidance, failure to acquire new assets, and lack of growth initiatives.
ICG proposes acquiring up to 100% of MarineMax's YMRS Business, valuing it at a double-digit EBITDA multiple, and offering substantial cash proceeds for MarineMax. This could help MarineMax repurchase shares, reduce debt, or pursue strategic acquisitions.
- ICG's proposal values YMRS Business at a double-digit EBITDA multiple, much higher than MarineMax's current multiple range of 5-6.
- Proposed sale could provide substantial cash proceeds for MarineMax to repurchase shares, reduce debt, or pursue strategic M&A.
- MarineMax's Adjusted EBITDA down 27% and Adjusted EPS down 43% for fiscal year 2024.
- No new assets acquired by IGY, risking competitive advantages.
- CEO of IGY, Tom Mukamal, left the company.
Insights
Island Capital Group’s critique of MarineMax centers on the perceived underperformance of the company’s recent acquisition, IGY Marinas. The financial performance figures cited, particularly the 27% decrease in Adjusted EBITDA and the 43% decline in Adjusted EPS, are stark indicators of financial strain. For shareholders, these numbers are concerning as they reflect a significant deviation from initial projections, hinting at possible underlying operational inefficiencies or misaligned strategic goals.
From a financial perspective, the proposal by ICG to acquire up to 100% of the YMRS Business (YGY Marinas) at a higher EBITDA multiple could be seen as an opportunity to unlock value. Specifically, the offer to buy the assets at a double-digit EBITDA multiple, while MarineMax trades at a 5-6 times multiple, could provide immediate liquidity and potentially more favorable use of capital through share repurchases, debt reduction, or further strategic acquisitions.
This move could stabilize MarineMax’s financial position and improve shareholder value in the short term. However, it's essential to consider the long-term strategic fit and whether divesting from the high-margin, luxury segment might narrow MarineMax’s market scope too much.
Island Capital Group's open letter brings to light critical market positioning issues for MarineMax. The apparent stagnation in the development and acquisition of new assets for IGY, compared to competitors who are aggressively expanding, indicates a potential strategic oversight. This can put MarineMax at a competitive disadvantage in the luxury marina and yachting segment, an area that was expected to offer significant synergies and growth post-acquisition.
The letter rightly points out that the YMRS business is fundamentally different from MarineMax’s core retail boating business. The lack of integration and focus on the YMRS assets suggests possible misalignment in MarineMax’s business strategy and customer base. This could be contributing to the underperformance and shareholder discontent.
ICG’s proposal includes leveraging its own deep industry connections and lower cost of capital to rejuvenate IGY’s growth. From a market standpoint, this could be an advantageous move, allowing MarineMax to redeploy capital more effectively into its core operations while still potentially benefiting from ICG’s stewardship if a minority interest is retained.
July 9, 2024
Dear Shareholders of MarineMax, Inc.,
I am writing on behalf of Island Capital Group LLC (“ICG”) (www.islecap.com), a real estate oriented private equity and merchant banking firm of which I am the founder, chairman & CEO. I am also the founder and former Chairperson of Island Global Yachting (“IGY”), a company I built, from scratch, over an approximately 20 year period and sold to MarineMax, Inc. (NYSE: HZO) (“MarineMax” or the “Company”) in 2022. During the time I ran the business, I oversaw the acquisition and development of every single marina in the IGY portfolio, the negotiation of every management agreement and the hiring of nearly every employee. As a result, my knowledge and understanding of IGY, its businesses, its venues, its platform and the opportunities presented by it are second to none.
At the time of the sale, I believed (and continue to believe) that there are synergy benefits to the combination of IGY and MarineMax’s yachting and marina related services businesses, including Fraser Yachts and Northrop & Johnson (collectively with IGY, the “YMRS Business”). I had every reason to believe that IGY would thrive under its new owner. However, in the less than two years following the sale, based on publicly available information, the following has occurred:
-
the Company has successively reduced its fiscal year 2024 Adjusted EBITDA and Adjusted EPS guidance twice in its last two quarters of earnings releases, with Adjusted EBTDA down a total of
27% and Adjusted EPS down a total of43% compared to its initial guidance for the year; - no new assets were acquired by IGY while competitors have raised capital and developed and acquired assets, putting IGY’s competitive advantages at risk;
- the Company has failed to advance any of the growth initiatives IGY highlighted in its sales process; and
- Tom Mukamal, who I hired and who successfully led IGY as CEO from 2010 to 2023, left IGY.
The acquisition of IGY has not enhanced MarineMax’s valuation or provided any meaningful uplift to the Company’s share price. In fact, prior to the June 2, 2024 news of a rumored acquisition of the Company by OneWater Marine Inc. (“OneWater”), MarineMax’s share price was approximately
We believe that the YMRS Business is not a key focus of management. The MarineMax management team does not spend a meaningful amount of time discussing these assets on its earnings calls. The Company’s investor materials also reflect the view that this portfolio is an afterthought. Furthermore, there are no meaningful synergies between the retail boat business and the YMRS Business. The YMRS Business is a real estate and luxury services business, whereas the retail boat business is a product business. The customer bases are completely different.
It is through this lens that I am making an open proposal to acquire up to a
A sale of the YMRS Business would provide a substantial amount of cash for the Company at a time when its core business is under pressure, and the proceeds could be utilized in an accretive fashion to repurchase stock, delever the Company and/or pursue acquisitions in the Company’s core business. Additionally, to the extent desirable, ICG is willing to acquire less than
The merits of our proposal include the following:
ICG’s Proposal is high quality, carries low risk and is immediately actionable. Our proposal would value the YMRS Business at a double-digit EBITDA multiple (significantly above MarineMax’s current trading levels), does not have any conceivable antitrust risk and could provide the Company with an ongoing participation in the potential growth in the YMRS Business (if it retains a minority interest). Furthermore, our proposal would provide MarineMax with substantial cash proceeds that could be allocated to accretive initiatives, including but not limited to share buybacks at relatively depressed trading levels, strategic M&A and/or balance sheet deleveraging. These initiatives could create significant value for shareholders. In contrast, the rumored transaction with OneWater may undervalue MarineMax as a whole and would also carry significant contingencies and regulatory risk.
ICG has a growth strategy for the YMRS Business and has access to a lower cost of capital investor base. In a potential partnership between ICG and MarineMax, the YMRS Business would benefit from the deep and longstanding industry and governmental relationships upon which IGY was built. We have identified several acquisition and growth opportunities that would dramatically enhance IGY’s network.
MarineMax has not created value in the YMRS Business. Regrettably, MarineMax has not been able to achieve any significant growth initiatives as stewards of IGY. Meanwhile, competitors have expanded their portfolios and have raised capital to fund acquisitions, potentially encroaching on IGY’s leading network and brand.
MarineMax still owes ICG and affiliates an earnout payment. ICG and its affiliates continue to hold a material financial interest in the Company, with an earnout payment due in less than a year, which is carried at
ICG, as the former controlling owner of IGY, has minimal execution risk to complete the proposed transaction and can move with tremendous speed. Based on this historical ownership, ICG has intimate familiarity with the IGY portfolio, its management team and the legal framework in which IGY operates, all of which make ICG the best party to quickly execute a transaction. There is no potential acquirer or investor who could move more quickly and deliberately than could we.
ICG is seeking to engage with MarineMax immediately. We believe that a transaction could be completed in as little as 60-90 days, and we stand ready to commence a dialogue with MarineMax’s management and board of directors about any aspect of our proposal.
Respectfully,
Andrew L. Farkas
Managing Member, Chairman & CEO
View source version on businesswire.com: https://www.businesswire.com/news/home/20240709295338/en/
For Island Capital Group LLC
Mike Geller
mgeller@prosek.com
Source: Island Capital Group LLC
FAQ
What is the main criticism by Island Capital Group regarding MarineMax's handling of IGY?
What does ICG propose in their open letter to MarineMax shareholders?
How has the acquisition of IGY affected MarineMax's financial performance?
Why is ICG's proposal considered beneficial for MarineMax's shareholders?
What valuation does ICG place on MarineMax's YMRS Business?
What strategic actions does ICG suggest if MarineMax accepts their proposal?
