Stormy Seas for Europe's Luxury Yacht Makers

Beneteau, Ferretti, and other builders of floating palaces favored by the ultrarich are foundering as a cash crunch hits the industry

By Carol Matlack

Europe's luxury yacht business has run aground amid the global economic slowdown. Sales of high-end pleasure boats are plunging after a decade of unprecedented growth that transformed some small, family-owned Old World boatbuilders into global players churning out multimillion-dollar floating playthings for some of the richest people on the planet.

Now, these companies are shedding workers and negotiating with creditors in a scramble to stay afloat. France's Beneteau (CHBE.PA), the world's biggest sailboat maker, said on Apr. 9 that it would eliminate 600 jobs, or about 10% of its workforce. From 1997 to 2007, Beneteau's annual sales grew from $235 million to more than $1.4 billion—only to sink 50% in the past year. Under those circumstances, Chairman Bruno Cathelinais says: "We have no other choice. We must safeguard the competitiveness of the business and assure its survival."

Beneteau has plenty of company in its misery. Italy's Ferretti, one of the top two manufacturers of 80-foot-and-above luxury yachts costing $3 million or more, concluded an agreement on Apr. 8 with creditors to restructure some $1.4 billion in debt. One of several European yacht makers snapped up by private equity firms, Ferretti was taken over in 2006 by London-based buyout group Candover (CDI.L) in a $1.6 billion deal. But the boatmaker defaulted on interest payments earlier this year, and Candover has now written off the entire investment.

Bankers' Remorse

Banks that financed the Ferretti deal are taking a bath, too: Under the Apr. 8 pact, lenders including Royal Bank of Scotland (RBS) will write off almost half of the $1.4 billion debt in exchange for equity stakes totaling roughly 52% of the company. The remainder will be held by Ferretti management, led by founder and CEO Norberto Ferretti, which is putting up $92 million, and Italian bank Mediobanca (MDBI.MI), which is investing about $20 million.

Another private equity firm with boat buyers' remorse is Bain Capital, which in 2007 bought German yacht maker Bavaria Yachtbau for $1.75 billion. Citing internal company documents, Reuters reported in February that Bain had written down the value of the investment to zero. Bavaria Yachtbau doesn't disclose sales figures, and its CEO, Andres Cardenas, has insisted in recent interviews with the German press that the company has no plans to curtail production.

Other yacht makers, though, may be slipping under water. Two smaller French players, Couach (YACHT.PA) and Rodriguez Group (RDGP.PA), in recent weeks have sought temporary protection from the French equivalent of bankruptcy courts as they struggle to restructure their debts. Both have suspended trading of their Paris-listed shares, although Rodriguez said in a statement on Apr. 8 that it has sufficient cash to "continue its operations under normal conditions."

Labor Protests

Yacht builders typically need lots of cash in the early months of the year, as they finish up boats for delivery to customers before the summer sailing season. "That's why we have so much bad news coming right now," says Thomas Alzuyeta, a Paris-based industry analyst with Fortis Bank (FOR.BR).

Although the world's biggest pleasure-craft maker is Illinois-based Brunswick Corp. (BC), only a small part of its $2 billion boat business is at the top of the market, where the Europeans dominate. The top global maker of 80-foot-and-up yachts—the kind favored by corporate moguls, Middle Eastern sheikhs, and Russian oligarchs—is Italy's Azimut-Benetti, followed by Ferretti and Rodriguez. Azimut-Benetti is hurting, too: It's facing labor protests over a plan to furlough workers for the next few months.

Europe's yacht-building industry has already gone through a round of consolidation, with bigger companies absorbing smaller, weaker ones. Could another round of acquisitions be coming? Not likely, says analyst Alzuyeta. "The big groups prefer to hold onto their cash." As for the smaller ones, he says, "there will be a lot of failures."

Matlack is BusinessWeek's Paris bureau chief.