OneWater Marine $ONEW
A serial acquirer in choppy waters
OneWater Marine trades on the NASDAQ with the symbol ONEW and has a market cap of $500 m USD. It has a long history dating back to 1987 where it was a one store family owned business operating a single boat dealer location. It stayed that way until the economic downturn in 2008 when many mom and pop operators went under or didn’t have any succession plans in place. The ONEW team opportunistically acquired 8 businesses and since then have been a successful serial acquirer, rolling up the space. They have steadily acquired more stores and have grown their network to 75 as of May 2022 and now offer many more offerings and have made efforts to expand their maintenance and parts business.
For those looking for compelling growth with a view on consumer discretionary spend continuing to be stronger than what the market is pricing, this one could offer high rewards over a few years.
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Let’s dive a little deeper into the business, the management, the risks and a look at valuation.
What They Do
ONEW owns and operates a network of independently branded boat dealers and other marine related parts and service businesses. They acquire smaller dealers in a very fragmented industry. They have OEM suppliers that they place orders with and maintain a certain inventory of boats and parts for their businesses based on expected demand. They utilize backend data to leverage their growing network of dealers across mainly the southeastern states.
The business is as seasonal as you can imagine. They build up inventory over the winter and draw down with higher sales in spring and summer months. The new boat sales account for 70% of revenue, whereas used sales have been 16% and parts and maintenance accounts for a growing but smaller 11%, albeit at a higher margin. Expect the parts and maintenance mix to increase over the next few years as they set out to grow that side of the business.
The unit economics are simply not amazing for a boat dealer but are slightly better for a parts and maintenance operation. That being said, the roll up model coupled with some operating leverage capabilities with a larger network of locations do result in a business that can produce good free cash flow through most of the cycle.
The other aspect of the business that has evolved with the strong demand since 2020 coupled with restricted supply has been that turns have increased as a result. The capital efficiency has therefore increased and management has taken notice. I suspect this may end up becoming a “new normal” as opposed to temporary phenomena. Management has made this comment as well and there are signs that the OEMs would be happy with this too.
Overall, the business quality is objectively not high. That’s not to say it is a bad business, but you are relying more on the capital allocation of the management and shrewd cost management of the operations teams to ensure that the value accrues to shareholders over time.
The management team has been clear about their acquisition strategy going forward:
Acquire 4-6 boat dealers
Acquire 2-4 parts/maintenance businesses
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