While motorcycles are declining in the U.S., OEMs like Polaris Industries and BRP have other segments to fall back on, namely the ATV and UTV market. However, the off-road market may be slowing and OEMs are turning to the seas to drive more revenue growth.
In May, Polaris announced its entrance into the marine sector with the acquisition of Boat Holdings, a manufacturer of luxury pontoon boats. The deal was valued at $805 million and Polaris stated that sales in the pontoon boat category have grown at an 11% compounded annual growth rate since 2010.
“Because [Polaris] is such a market leader already, ATVs aren’t growing at the same cadence as they have in the past and snowmobiles aren’t growing particularly robustly and there are a lot of other markets are struggling,” Jaime Katz, equity analyst at Morningstar Credit Ratings, told Powersports Finance. “You have to find some other way to find growth and this has been the avenue that they have chosen to do that.”
Off-road sales have been positive for the OEMs. Polaris reported that total off-road vehicle and snowmobile sales grew by 17.2% year over year during the period ending in June. That’s up from year over year gains of 4.6% between 2016 and 2017. Additionally, BRP’s powersports segment was up 12% in the first fiscal quarter 2019 with side-by-sides and ATVs leading the way with mid-thirty and mid-single-digit year over year gains, respectively, according to earnings.
Still, Katz noted that the acquisition was initiated much earlier when it looked like off-road vehicles were slowing. Not to mention, motorcycle sales have been on the decline and there’s always a chance that ATVs could see a decline next year.
Two major powersports OEMs entering the boat market around the same time is enough to capture attention. The fact that Polaris and BRP were increasing their activity in the marine sector is a sign that they see potential in the market. There is also a factor of the marine industry sharing commonality with powersports, such as similar demographic and manufacturing process.
“If you think about what activity would fit in the wheelhouse for a business like [powersports] that would be an adjacent market, the boat industry is sort of a clear fit,” Katz said. “The time was right, the [boat] businesses are in pretty good shape, and there’s an opportunity to improve the operating margin on a platform where you are sharing some services with other manufacturing processes.”
The marine market has been steady for Mountain America Credit Union. Based in West Jordan, Utah, the credit union finances automobiles, motorcycles, RVs, and boats, and has seen frequent activity in the latter.
“It’s been busy,” Mike Peterson, a loan agent with MACU, told Powersports Finance. “What I have experienced this year is mostly in boats. I would say that it’s been fairly consistent for us.”
Part of that consistency comes from there being a variety of water-based recreational activities available in Utah, drawing people to get out on the water with “hybrid-boats” that can facilitate multiple needs, such as fishing or docking a jet ski.
Additionally, Polaris and BRP aren’t the only ones who are investing in the marine space. RumbleOn, an online marketplace to buy, sell, and trade powersports vehicles, is adding boats and RVs to the platform. While the company doesn’t expect boats to be a large segment of its business, it still saw a need to provide the option for its consumers.
“For us, it’s pre-owned so its a defined quantity,” Chief Exectuive Marshall Chesrown said, “I will tell you that it’s significantly smaller than RV. If we were to model that out, we would probably say as we enter boats and RVs, we just felt that we should do them at the same time.”
For Polaris and BRP, the marine sector is an opportunity to draw in more revenue, and while the boat market has grown over the last few years, the growth raises concerns that it has already peaked. Boat Holdings, for example, had 26% market share with $560 million in sales in 2017.
“There’s been real robust demand growth [in the marine market] and our sort of concern is are we at a market peak here?” Katz said. “Did these companies overpay potentially if there is still not a lot of growth potential for the businesses and the sales point is just a function of what the terms were agreed to and won the initial sort of effort to define a strategic alternative?