Explain Malibu Boats' business model (be certain to include thevalue proposition and profit formula). How — if at all — has itchanged over the first five years?

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Jack Springer, CEO of Malibu Boats since 2010, looked out overthe main production facility of Louden, Tennessee, facility. In histen years at the helm of the Tennessee boat company, he hadtransitioned it from an industry leader in high-performancetowboats to a diversified firm that included high-performancefishing boats. A significant facet of this transition was Malibu's2017 purchase of Cobalt Boats for $130 million and the 2018purchase of Pursuit Boats for $100 million. Unknown at the time ofthe purchase was the havoc the COVID 19 pandemic would have on theworld economy and the boating industry. Springer's task this summermorning was to prepare a written assessment to present at theupcoming Board of Directors meeting. Earlier in the week, the boardhad requested an assessment of the Cobalt and Pursuit acquisitionsin the current economic context. As he looked out on the productionfloor, he pondered several questions: is Malibu in a better orworse competitive position with the acquisitions? What impact willa down economy have on the future success of this acquisition? And,what had the company learned from the experience?

Malibu Boats

Headquartered in Loudon, Tennessee, Malibu Boats is a topdesigner, manufacturer, and marketer of a diverse range ofrecreational powerboats, including performance sport, sterndrive,and outboard boats (Globe Newswire, 2020).

Founded in 1982 by Bob Alkema and Steve Marshall, Malibu Boatsbegan production averaging two boats per week. The company grewquickly and increased staffing and production. In 1986, the companyimplemented an employee stock ownership program and had achieved anine percent market share by 1988. Needing to expand production,Malibu opened a second plant in Tennessee, which allowed thecompany to produce almost 1000 custom ski boats that year.

In 1992, Malibu built a new manufacturing facility in Loudon,Tennessee. The company's focus on innovation led it to create andpatent a fiberglass engine chassis system (FibECS) that eliminatedvibration and noise. In the mid-nineties, Malibu expandedinternationally to Australia thorough a licensee agreement.

In the area of water sports, Malibu was on the front end ofresearch and development of wakeboarding features. By recognizingthat the wakeboarding market was a natural outgrowth of thetraditional sport of water skiing, Malibu was able to capitalize onthis fast-growing market (Willet, 2012).

In the early 2000's Malibu established itself as the largestcustom ski boat manufacturer in the world. In 2006, HorizonHoldings and Black Canyon Capital acquired Malibu.

Unlike competitors in the industry, Malibu was able to expandmarket share during the Great Recession of the mid-2000s.

Jack Springer was named CEO in 2009, and under his direction,Malibu launched the Axis Wake Research brand and relocatedheadquarters to the firm's production facility in Loudon,Tennessee. In doing so, Malibu positioned itself closer to thefreshwater marine manufacturing industry.

In 2013, Malibu established a new holding company for alloperations – Malibu Boats Inc. The new entity was formed, in part,to prepare for the company's initial public offering (IPO) inJanuary of 2014. In going public, initial trading began at $14 ashare, generating a market capitalization of $300 million (Kaiser,2014).

Malibu's International Presence

Malibu has a small but important international footprint. In theearly 1990s, the company had established its brand and amanufacturing facility in Australia through a licensee agreement.After Malibu's successful IPO, the company acquired all equityinterests in Malibu Boats Australia and made assurances the companywould maintain its presence in that market. Malibu Boats Inc. haspublicly stated that Malibu Australia may become Malibu's primaryproducer for the entire Asian market.

In addition, through the acquisition of Cobalt boats and itsdealer network, Malibu Boats Inc. has access to locations in Canadaand overseas.

Acquisition of Cobalt and Pursuit Boats

Malibu's first major acquisition was a $130 million deal topurchase competitor Cobalt Boats (Malibu Boats, Inc., 2017). Thedeal maintained separate manufacturing operations; Malibu inLouden, TN, and Cobalt in Neodesha, KS.

In October of 2018, Malibu Boats acquired Pursuit Boats from S2Yachts to expand its premium brand into the fast-growing saltwaterfishing boat industry. The purchase price was $100 million. Inaddition to expanding its brand offerings, Malibu states, "theacquisition gives the company the ability to leveragemanufacturing, design expertise, and distribution to accelerateoutboard growth" (Trade Only Today, 2018). Malibu will finance the$100 million purchase with $50 million in cash on hand and $50million in credit (Boating Industry, 2018).

"Pursuit is an incredible addition to the Malibu family," saidJack Springer. "This highly complementary business creates strongstrategic opportunities to enhance product development across ourportfolio of brands. Together, we have an opportunity to broadenour outboard offering, while leveraging the manufacturing anddesign expertise of the respective teams." (Trade Only Today,2018).

Cobalt Boats

Cobalt Boats is a market leader in mid to large-sized sterndriveboats that include cruisers, bowriders, and outboards used forcruising, skiing, entertaining, surfing, and fishing (Malibu Boats,Inc., 2017). Cobalt is a world-class brand producing 24 modelsacross six series. The company has a dealer network of 132locations in the U.S., Canada, and overseas. The year prior to theacquisition, Cobalt generated approximately $140 million in netsales.

Pursuit Boats

Pursuit Boats, located in Fort Pierce, Florida, builds 15 modelsof high-quality saltwater fishing boats in lengths of 23 to 40feet. Pursuit has established itself as a premium brand by buildinghigh-quality offshore fishing boats for over 40 years (BoatingIndustry, 2018).

A2 Yachts, the original parent company of Pursuit Boats, is aprivately held firm. S2 Yachts will continue to operate and ownTiarra Yachts and Tiarra Sport. Limited financial information isavailable on S2 Yachts as it is a privately held firm.

Malibu Today

Today, Malibu Boats is a leading designer, manufacturer, andmarketer of a diverse range of powerboats across four primarybrands: Malibu, Axis, Cobalt, and Pursuit (Malibu Boats, 2019).Company accolades include holding the #1 market share position inthe U.S. in the performance sport boat category, the #1 marketshare position in the U.S. in the 24'-29’ segment of the sterndrivecategory, and a holding a leading market position for fiberglassoutboard fishing boats (Malibu Boats, 2019). Malibu's boats areused for activities including water sports and recreational boatingand fishing. Retail prices across the various models range from$60,000 - $800,000.

• Malibu – The flagship line provides consumers the latestinnovations and designed for customers seeking a premiumperformance sport boat.
• Axis – Designed for customers who desire a more affordableperformance sport boat yet expect high performance.
• Cobalt – Comprise mid to large-sized cruisers and bowridersproviding exceptional comfort, performance, and quality.
• Pursuit – Consist of saltwater outboard fishing boats using acenter console, dual console, and offshore models.

Competitive advantage across the brands is created by newproducts, a strong dealer network, and innovation. Malibu has builta distinctive competitive advantage. As an example, the IntegratedSurf Platform (ISP) patented Surf Gate is an industry-leading (andenvied) product. Similar to other boat brands in the industry, thedealership network is vital to the customer experience and MalibuBoats. As such, Malibu dedicates significant resources to find,develop, and improve the performance of dealerships. As of July2019, the company's distribution channels consisted of 350 dealerlocations globally. Innovation continues in 2020 with the launch ofStern Turn, which provides the driver the maneuverability of asterndrive or outboard boat, thereby making navigation easier(Malibu Boats, 2019).

Compared to competitors, Malibu Boats has a higher degree ofvertical integration. Malibu manufactures many of its own parts,including towers, stainless materials, trailers, and, morerecently, engines. CEO Jack Springer builds as much as 25% morein-house compared to rival companies (Malibu Boats, 2019).

• Malibu is traded on the NASDAQ – Global Market index underMBUU, a Class A common stock.
• In 2019 Net sales increased 37.6% to a record high of $684million.
• Malibu Boats continued to be a growth company finishing 2019 asthe twenty-eighth fasted growing company on Fortune Magazine'sFastest-Growing Companies List.

Marine Industry

Towable performance boats have been a large part of the marineindustry. Malibu has long held a premium position in this industrysegment. The saltwater outboard fishing market is one of thelargest and fastest-growing segments of the marine industry.

Conclusion

As Springer reflected on the upcoming board meeting, he couldnot help but recall his optimism in the 2019 annual report.Specifically, he cited that the U.S economy was strong, consumerconfidence high, inflation low, and employment high. As such, hewas confident that markets would remain strong for the foreseeablefuture. Then, the COVID 19 Pandemic changed everything. The rosypicture he had painted for the 2020 fiscal year will look verydifferent.