Hinckley Yachts: Killed by private equity scumbags, just like Simmons Mattress was

Discussion in 'Economics' started by ByLoSellHi, Oct 10, 2009.

  1. Debt Trips Up Hinckley, Venerable Maine Yacht Maker


    Published: October 9, 2009

    David Rockefeller Sr. ordered a new boat last year, a $3 million 55-foot powerboat.

    “We always built a high-quality product,” said Bob Hinckley.

    Matt McInnis for The New York Times

    A Hinckley yacht in Southwest Harbor, Me. The company has run a tighter ship, with layoffs and stricter financial controls.

    Mr. Rockefeller, now 94 years old, may not have needed a new boat. It was, after all, the sixth he has bought from Hinckley Yachts in Southwest Harbor. But Hinckley Yachts and its workers certainly needed the order — and providing them with work was part of Mr. Rockefeller’s motivation, his spokesman said.

    Hinckley — which has been making boats since 1928 and is known for classically designed, beautifully constructed sailboats as well as sleek, easy-to-maneuver powerboats — is under financial pressure. It has significantly reduced its work force — from about 625 employees at its peak in mid-2008 to 305 at the end of August. The layoffs, in turn, have affected Southwest Harbor businesses, some locals say.

    Like other yacht makers, Hinckley lost substantial business when the economy turned sour. But Hinckley’s problems can also be traced to its sale to one, and then another, private equity firm over the last dozen years. With each sale, it took on more debt, which became onerous when business slowed. And the culture also shifted from a family-owned business to one controlled by outsiders.

    Beginning early this decade, near the peak of demand, private equity buyers poured money into yachting, convinced — wrongly, it turned out — that the business could weather any economic storms because its wealthy clients would continue to buy. Several other boat makers have run into problems, including Ferretti of Italy and the MasterCraft Boat Company of Vonore, Tenn.

    Hinckley may well survive this downturn, thanks to a strong brand name nurtured over decades of Hinckley family ownership and a loyal clientele, some of whom spend their summers near Bar Harbor.

    James P. McManus, who was hired as Hinckley’s chief executive two years ago by Monitor Clipper Partners, the private equity firm that now controls the company, declined to comment on Hinckley’s finances.

    [​IMG]A Hinckley yacht in Southwest Harbor, Me. The company has run a tighter ship, with layoffs and stricter financial controls.

    In the meantime, some of Hinckley’s critics say, the constant pressure on the bottom line by the new owners has left some employees feeling that management misunderstands the customers and the employees. “If they had not had that debt, we could have weathered this,” said Ruth Brunetti, who, during a 20-year career at the company, was chief financial officer, treasurer and contracts negotiator. She was dismissed in July. “We have suffered from a double impact: the economic downturn and corporate greed.”

    Some companies are still profitable. Sabre Yachts, a boat maker owned by the entrepreneur Daniel Zilkha, “will be profitable despite a substantial drop in sales, because it carries no debt,” Mr. Zilkha said.

    Because Hinckley is privately held, it does not release details about its profits and losses. But according to people close to the company, Hinckley’s revenue in 2008 was roughly $100 million and taxable income was about $4 million. But this year, for the first time since the mid-1990s, it will have a taxable loss of about $4 million, they said. Several people close to the company estimate that revenue this year could fall to $50 million to $75 million.

    Buyers certainly pulled back — unwilling or unable to pay $900,000 to $4 million for Hinckley’s sailboats or $400,000 to $3 million for its powerboats. In the spring, only three boats were under construction at Hinckley’s main manufacturing plant in Trenton, Me., including Mr. Rockefeller’s. In an interview, Mr. McManus said he was optimistic about the company’s future. He said orders had begun to return, and he planned to bring back 85 employees this month. Buyers are not the only customers in retreat. Hinckley also services and stores boats, and a boat restoration can cost as much as $150,000. “But now people are not spending for that work,” said one former Hinckley employee who did not want to be identified as talking about the company.

    “One customer with a 92-foot sailboat was going to spend $2 million to refit it, but he canceled that order,” this person said. “That would have kept somewhere near 25 people busy for six to eight months.”

    Bob Hinckley — the grandson of the founder, Benjamin Hinckley — who ran the company with his partner, Shepard McKenney, from 1982 until it was sold in 1997, has fond memories. “I worked there as a kid,” he recalled. “We always built a high-quality product,” he went on. “We used wild teak, not plantation teak even though it costs two to three times as much. We used a great deal of varnish. It took us about 10 months to build a 50-foot sailboat.”

    [​IMG]A popular Hinckley powerboat.

    Mr. Hinckley was running the company in the early 1990s, when the government levied a 10 percent luxury tax on yachts and orders fell. “It was brutal,” Mr. Hinckley recalled. “Wealthy people don’t like to be taxed on their hobby.”

    Still management shared the pain with employees. “We cut our own salaries in half and asked employees to take a 10 percent pay cut across the board,” Mr. Hinckley said. Guy Dunbar, a former production manager who now owns Dunbar Real Estate in Southwest Harbor, recalled that “after a year, they paid us the difference.”

    Meanwhile, Mr. Hinckley went overseas and sold boats to Germans and Japanese for whom the luxury tax was not an issue. “We never leveraged up the company,” Mr. Hinckley said. “We paid down loans. When we sold the company, it had just $1 million in debt.” Bain Willard Companies, a Boston-based private equity firm, was the first buyer, 12 years ago. It paid about $20 million, equal to about one year in sales, putting down about 25 percent in cash and borrowing the rest, according to several people with knowledge of the negotiations.

    And Bain Willard had the wind at its back. Hinckley had introduced the “picnic” boat not long before — a luxurious powerboat that combined the look of a New England lobster boat with a water jet propulsion system, instead of a propeller, that allowed the boat to maneuver in shallow water. It had been an instant hit.

    Bain Willard expanded Hinckley, opening service centers in Florida, Maryland, Rhode Island and other places. In those boom times, the strategy paid off. In 2001, it sold about 51 percent of Hinckley to Monitor Clipper of Boston for an estimated $40 million in debt and equity. Bain Willard executives could not be reached for comment, and Monitor Clipper declined to comment.

    [​IMG]Hinckley’s popular “picnic” powerboat, a luxurious craft with a water jet propulsion system that lets it maneuver in shallow water.

    But after Sept. 11, 2001, and the start of war in Iraq, boat buyers became nervous and growth stalled. In 2005, Hinckley sold its real estate across the country, raising enough money to pay down much of its debt, according to a person with knowledge of the company’s finances. It leased back the land, replacing interest payments with rent payments. Its revenue recovered in 2006 and 2007 before the economy weakened.

    The company has begun to monitor its cash flows aggressively. “We have always watched over receivables,” Ms. Brunetti said. But this went further, she said.

    One owner, who has had a number of Hinckleys, said he had a lien on his boats for several thousand dollars in storage fees after doing business with Hinckley for years. And a former employee said: “If a customer was 30 days behind on payments, we had to call. It was just not the way we had done business.”

    But Mr. McManus countered that asking customers to pay what they owed was simply good business and that relations with clients were good. Still, in a business that deals with the superwealthy, that aggressiveness can antagonize important customers, several former employees said.

    In Ms. Brunetti’s opinion, “Today, people are worried about doing business with Hinckley because of the monetary situation and their reputation for how they treat their customers,” she said. “That has taken a toll.”

    Hinckley’s problems have also taken a toll on its hometown.

    Leslie McEachern, the owner of McEachern & Hutchins, a hardware business his family has owned for six decades, said: “Hinckley was a good business in the area. They employed a lot of people. Unemployed people don’t spend money, and all the businesses around here are feeling it.”

    Ms. Brunetti said: “What upsets me is that this is a small town. Lots of people who really loved the company got hurt.”
  2. Don't be surprised if those smart arse Private Equity firms take the name and start building the yachts in China.....like everything else.
  3. zdreg


  4. Ok but why did he sell his company in the first place?

    He is the one to be blamed.
  5. lrm21


    Boo Fucking Hoo...

    I missed the part where the Private Equity guys, kidnapped his family and threatened to send them back to him in pieces until he signed over the company.

    WTF is it with all these anti-capitalist threads.

    Capitalism is a 2 way street. He could of been happy running the family business and saving money for the rainy days to come instead he got greedy and now his business is going under.

    Sheep get slaughtered.
  6. How about all the Private Equity firms get together and start buying countries?
    Argentina? Brazil? Costa Rica?
    I'm actually half serious.
    If Red Adair and Boots and Coots could literally put out the very fires of Hell, (which they could, literally!)due to American ingenuity, why can't we buy countries?
  7. Private equity firms (in the past) buy and sell the companys to make profit for themself, not always to make the company they buy better. Ok. They need (leverage-bank loan) to do that. But no more credit to make the secondary market buy right now, true?
    So maybe the private equity firm will make the company better, because they can not sell on the secondary market, like in the past? No leverage, no one to sell to except the buyer with most cash.
  8. I'm sure that PE firms do take over companies and load them down with dangerous levels of debt and take out cash in the form of dividends, fees, etc. Happens all the time. I'm not trying to excuse it.

    What I didn't see in this article is any explanation for Hinckley's problems, other than a lousy economy that hit their target buyers very hard. Were the employees complaining when Bain expanded their business, no doubt creating additional jobs? Were the original family owners complaining when they cashed out? What did they think Bain and the other PE owners would do? Run it for the benefit of the employees?

    I fail to see how the PE owners are responsible for a high end luxury product suffering in a tough economy.
  9. I see no 'scumbags' in this story. It's just the same ole greater-fool process at work. If the company fails then surely some of the employees learned enough 'stuff' to start their own company. Their chances of doing so are greatly increased by the existence of Private Equity firms.
  10. jem


    I have to agree with the comment why the heck did the founders son or grandson sell for 1x sales if he loved his boats and his business so much.

    Especially with a hit jet boat on his hands.
    #10     Oct 10, 2009