Anchors Away

REVIEW SUMMARY
Business. Freedom Boat Club, Venice
Industry. Boating, recreation
Key. Company has new owners, who come with ambitious growth plans.

Entrepreneurs John Giglio and Bob Daley met a tidal wave of resistance when they tried to buy a boat business last year.

The duo specifically struggled to find a bank that would help finance the deal. Even though they had heard horror stories of small business owners frozen out of lending, the experience nonetheless surprised Giglio and Daley.

The hurdle was unforeseen, Daley says, because the business he and Giglio sought to buy was a 22-year-old company with a competitive edge, a proven track record and a sterling reputation. The firm, Sarasota-based Freedom Boat Club, was even on a growth spurt, despite the recession that sank many other boat-related business. Annual revenues, which Daley says are between $16 million and $25 million, have grown 25% year-over-year since 2008.

Giglio and Daley, who had worked for the company in executive roles for several years, finally obtained financing in March with the Sarasota branch of BankUnited. It was the culmination of a six-month process that included multiple rejections. The pair bought the company from Cincinnati-based investors. Daley declined to elaborate on the financing arrangement or the purchase price.

“While John and I have risked a substantial portion of our personal wealth,” says Daley, “our cautious confidence in the future success of our company far exceeds that risk.”

Adds Daley: “We knew we were buying it for a great price. We just had to convince the banks of that.”

With the acquisition task accomplished, Daley, 61, is now CEO and Giglio, 36, is now president of Freedom Boat Club.

The business is like it sounds: a club for people who want to enjoy the boating experience but seek freedom from the costs and hassles of boat ownership. The 65-employee company runs 13 corporate locations in Florida, 11 of which are on the Gulf Coast. It's also the parent and support company behind 48 independent franchise facilities, including locations in Texas, New Hampshire and Ohio.

“When someone goes to buy a boat, they usually have no idea of the total cost,” says Giglio, who can quickly click off the litany of expenses a boat owner faces, from insurance and dock fees to training and upkeep. In the Freedom Boat Club, says Giglio, “they can spend their time enjoying the boat.”

Freedom Boat Club members have access to a fleet of boats, from flat boats and fishing boats to center console boats, pontoons and larger cruisers. Entry requires a onetime $5,500 fee, followed by monthly payments of $149 to $199. “Our niche is perfect,” says Giglio, “because you don't have to have a lot of money to get into the club.”

Club members, however, do pay for fuel for their boat outings — a significant expense.

Giglio and Daley recently moved the club's corporate headquarters from Stickney Point Road in Sarasota to a small office park in Venice. They also moved the Sarasota branch of the club from Stickney Point to Marina Jack in downtown Sarasota, where the new sales office is a 33-foot Viking boat they bought earlier this year. The boat-office even has air conditioning.

The owners also plan to tinker with the business model. They recently hired a new operations manager and they plan to upgrade several aspects of the company's technology, including its boat reservations system. They will refocus the corporate side of the company on growing the franchise base.

And Giglio and Daley already spent at least $500,000 on 20 boats to add to the fleet at the corporate-owned locations. The club now has 185 boats, up from 125 at the end of 2010.

Survival time
Still, challenges linger.

One challenge in particular is gas prices, which threaten the entire boating industry.

Indeed, Kevin McLaughlin, vice president of Manatee County-based Hann Powerboats, says “fuel prices are our biggest impediment right now.” McLaughlin is one of three Manatee County boat-manufacturing executives who recently spoke on a panel on the state of the local industry sponsored by the Manatee Economic Development Council.

The panel discussion attendees, 50 or so area business leaders, gasped when McLaughlin dropped this bomb: It could cost at least $500 in fuel to take an average boat out for four hours.

“That,” says McLaughlin, “stops the boat industry right in its tracks.”

Yet McLaughlin and a few other executives say a mini-revival is going on in the industry, which is notably smaller locally than five years ago. Back then, Donzi Marine, Wellcraft Marine and Chris-Craft Corp. all ran large boat-building operations in Bradenton and Sarasota. All three have since moved to North Carolina.

Hann Powerboats, for example, has seen an uptick in orders. The company makes boats for military branches and private customers. And Bill Michel says his firm, UFlex USA, is also growing. The firm, with more than $10 million in U.S. revenues, is a subsidiary of UltraFlex Group, an Italian energy conglomerate. It manufactures boat parts, including steering columns and bulkhead kits.

“There's been a backfill of companies that replaced” the ones that left, says Michel. “These are the survivors that are surging right now.”

That survival effort got a little easier in 2010, reports the National Marine Manufacturers Association. That's because while sales are still down, the drop is less than it was in 2009. For example, new power boat and sailboat sales totaled 188,230 in 2010, a 10% drop from 2009. That sales category fell 35% in 2009, according to an April report from the NMMA.

'Done well'
The NMMA figures that mean more to Giglio and Daley, however, are the ones that show a strong increase in people who participated in boating in 2010, not just bought boats. The association reports 32.4% of the entire U.S. adult population, or 75 million people out of 231.5 million, participated in recreational boating last year. That's up 14% over the 65.9 million boaters in 2009 and the highest percentage since it was 33.4% in 1999.

That's important because Freedom Boat Club tries to reach anyone who wants to get on a boat, from longtime anglers to novices. The pitch has been refined, too. For many years, entry into the club cost at least $15,000, with lower monthly fees. “It was really hard for us to get new members,” says Daley, “unless they were really well off.”

The company lowered the entry fee in 2007. Giglio says the idea was to shoot for monthly recurring revenues that were smaller, but steadier. It worked: Membership is up 137% since April 2007, from 970 to 2,300 members through this past April.

Freedom Boat Club has gone through several groups of owners since it was founded in 1989 in Sarasota with four boats. Daley and Giglio, kindred business junkie sprits, could be the most entrepreneurial of the lot.

Daley, a Long Island, N.Y. native, studied entomology and has written two books on insects. He has also owned a string of businesses, including an exterminator service, a hardware store, two convenience stores, a golf driving range, vending machines and finally, in Florida before Freedom, a boat cleaning service.

Daley sold his businesses in 2002 and retired to Florida. Boredom though, led him to take a job for $8 an hour on the dock at the Freedom Boat Club in Venice.

Giglio grew up in Rhode Island. He worked in human resources after he graduated from Florida Southern College in Lakeland. He later became part owner of family-run auto body business in Sarasota. He took a sales job with Freedom Boat Club in 2004.

Be quick
Daley and Giglio worked closely together to grow Freedom Boat Club for several years. Then, in late 2009, they began to look seriously at buying it. The owners brought up the sale possibility late last year, which Daley says “we were all over.”

The last few months since the deal closed have been a whirlwind for the entrepreneurs. The pair has studied the competition, for instance, which on the Gulf Coast includes smaller operations such as the Boat Club of Sanibel on Fort Myers Beach. Daley says Freedom has the largest fleet in the industry, but from past business experience he always keeps close tabs on the competition.

Another lesson Daley has learned is to move fast. In fact, he says Freedom Boat Club is less than three months away from signing new franchise agreements to add locations in the Caribbean, including Puerto Rico and The Bahamas. He hopes those deals close by July. And by the end of 2011, Daley hopes to have new Freedom franchise locations in California, Oregon and Washington.

Meanwhile, Giglio says a key goal is to build the social side of Freedom Boat Club, so members think of it as more than a place to grab a boat. The company plans to hold events and parties for members to get to know each other, much like golf clubs do. It might even throw some soirees on the 33-foot Viking docked at Marina Jack.

Says Giglio: “We want people to be begging and pleading to make their monthly payment.”

Finally, on technology, the company will implement a new boat Internet reservation system for members, which hasn't been updated since 2004. Dock masters might even eventually get iPads to monitor the boats and clients.

The technology additions and franchise expansion possibilities are just two of the many facets of Freedom Boat Club that have reinvigorated Daley.

“It's a wonderful business and a wonderful concept,” says Daley. “We've managed it for years, but now we are finally getting to own it and run it.”

Go Big

Shawn Schmoll is doing his best to squash a boat industry recession on the Gulf Coast.

The latest move: Schmoll, general manager of the boat-building plant at Donzi Yachts Built by Roscioli International, runs a crew building an 80-foot yacht in Manatee County. While it's only anecdotal proof of a recovery, it's still refreshing to have work at all, says Schmoll, who has run the local Roscioli plant for the Fort Lauderdale-based firm for nine years.

The yacht, being built for an undisclosed buyer, will cost $6 million to $8 million, says Schmoll. A crew of 20 employees is working on the project, which will take at least a year. Under guidelines from the owner, the yacht contains upgrades past even normal luxury yacht elements. “We didn't hold back the technology on this boat,” says Schmoll. “Everything is state of the art.”

The 80-foot yacht being built in Manatee County is currently going through an infusion process around for several decades, but was recently rediscovered by the industry. The process uses vacuum systems to infuse the boat's fiberglass with resin, a more efficient, cleaner and less expensive way than traditional boat building. The process, says Schmoll, has “been a godsend” for Roscioli International. Says Schmoll: “It makes us a better business.”