Polaris buys the biggest maker of pontoon boats for $805 million

Polaris Industries Inc., builder of vehicles for speed on the dirt, will go a bit slower on the water.

The Medina-based company on Wednesday announced it was buying Boat Holdings LLC, the nation's biggest maker of pontoon boats, for $805 million, the largest acquisition by value in Polaris' 64-year history.

The deal puts Polaris back in the marine business for the first time in more than a decade after it ended a small water scooter business and a licensing agreement with another manufacturer that put the Polaris brand on some boats.

With Boat Holdings, Polaris will become the owner of four well-known brands, including the leader in pontoons, Bennington, and a catalog of about 200 boat models with prices ranging from $14,000 to $150,000.

The pontoon segment has grown faster than the overall boat industry for several years in the United States. Since its start in 1998, Boat Holdings carved a lucrative niche with a build-to-order operating model that keeps inventory and expenses low.

"We are expanding into another large segment of the outdoor recreation market with the No. 1 player in the fast-growing pontoon space," Polaris Chief Executive Scott Wine said on a conference call with investment analysts. "We increase our share of wallet opportunity with customers and give them more chances to spend their recreation dollars with Polaris."

He said that Boat Holdings, owned and led by its founder Steve Vogel and his son Jake, had made innovations in pontoons that were similar to the strides Polaris has made in a fast-growing segment of two-passenger off-road vehicles called side-by-sides. "They did it on the water and we did it on dirt," Wine said.

Boat Holdings, which had $560 million in revenue last year, will boost Polaris' annual sales about 10 percent and add 1,100 employees to its current count of around 11,000. Polaris executives said Boat Holdings will be profitable almost from the start.

Jake Vogel, who has had day-to-day control as chief executive, will continue to lead Boat Holdings as an independent unit of Polaris with its base remaining in Elkhart, Ind. He will report to Bob Mack, president of Polaris' global adjacent business unit. Steve Vogel will become a consultant to Polaris reporting to Wine. The company has two manufacturing plants in Elkhart and another in Syracuse, Ind.

In an interview, Mack said Polaris has been exploring deals in the marine business for several years, with executives viewing it as a natural extension of the firm's reach in outdoor recreation.

"We always felt it was a logical place for us to be," Mack said. "We never really made boats or anything on water on this kind of scale."

Boat Holdings was just one of several companies that Polaris executives had studied in recent years. In March, a representative reached out to Polaris on behalf of Boat Holdings and the two firms began talking seriously, Mack said.

Boat Holdings' operating structure appealed to Polaris because its relies on manufacturing to customer orders and maintains a very low inventory of finished goods at its factories and with dealers. For two winters, Polaris has grappled with inventory buildup in its snowmobile business.

"This model of making product for dealers and customers vs. creating an inventory is the direction we're going with Polaris broadly," Mack said, noting that it's a difficult change to make because of the high production volumes of Polaris' off-road vehicles and snowmobiles.

Low inventories create flexibility for manufacturers to cope with sudden changes in economic conditions and consumer demand, Mack added. "We wanted to make sure that if we were going to get into [marine] that we got in with a model that would do well in good times and bad times," he said.

The Vogels three years ago added to their core Bennington line with acquisitions that brought in the Godfrey, Hurricane and Rinker brands of pontoon, deck and cruiser boats. Wine said he admired the Vogels' approach to acquisitions but added that Polaris does not plan to become an expansive player in boating.

"We are not looking to roll up the boat industry by any stretch of the imagination," Wine said. "We feel really good about the team, about the Vogels. If the right opportunity presented itself, we may move. We're really happy with where we're starting. We're going to learn and grow from that. I would not expect us to add to this segment anytime soon."

Polaris said it expects $100 million in future tax benefits from the combined company and placed the adjusted value of the deal at $705 million. Adjusted for the tax impact, Polaris is paying about 9.5 times the value of Boat Holdings' 2017 earnings before taxes and other expenses. "We are buying a large and growing, profitable business in the $8 billion boat segment for a very reasonable multiple," Wine said.

Polaris shares fell 1.5 percent Wednesday on a day when broad-market indexes rose about 1 percent.

Evan Ramstad • 612-673-4241