Sails and profits

12 January 2012 By Quentin Webb

Few companies embody the highs and lows of turbo-charged modern finance better than Ferretti. Once the luxury yachtmaker made a mint for private equity. Now a state-backed Chinese industrial conglomerate is buying it for at most a fifth of its peak value.

Ferretti’s financial journey launched in 1998. Previously family-owned, the firm became a small, wildly successful investment for a forerunner of Permira, the European buyout house. Turnover quadrupled in three years, and the backers made more than 50 times their money back in a 2000 flotation. That valued Ferretti at about 400 million euros including debt.

Two years later, luxury stocks were languishing. Another Permira fund bought Ferretti back, in an 833-million-euro deal. Ferretti gobbled up rivals, and sales soared yet higher, aided by the rise of the super-rich. Permira sold a majority to rival Candover in 2006. This “secondary buyout” valued Ferretti at 1.7 billion euros. Talk followed of a 3 billion euro flotation.

Then things went adrift. As the financial crisis set in, customers no longer felt filthy rich. High costs, plunging orders, and 1.1 billion euros of debt proved toxic for Ferretti. Candover lost control in 2009, hastening its own downfall.

Enter Shandong Heavy Industry Group-Weichai Group, which is taking control in a second restructuring. The lengthily named Chinese firm and Ferretti aren’t obvious bedfellows, but there is some logic. Shandong Heavy already makes marine engines. China is minting millionaires daily, and the only way is up for its tiddling yacht market.

The Chinese are paying 178 million euros for 75 percent of Ferretti’s equity and providing 116 million euros of new term debt, which implies an overall enterprise value of about 350 million euros. Major lenders RBS and Strategic Value Partners, a hedge fund, get the remaining equity for 25 million euros. Previous debt, totalling about 690 million euros, will be repaid at about 32 cents on the dollar, a person familiar with the matter says.

Ferretti isn’t the first distressed brand to find itself in Chinese hands. But the boatmaker popped up in many of the financial fads of the last decade. So a cashed-up Chinese state-owned enterprise seems a particularly fitting berth.

 

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