For Some Dead Brands, a Tortuous Path to Resurrection
At a time when bankruptcy auctions are filled with sad tales of beleaguered brands, snagging a well-known name for pennies on the dollar can seem like a sure bet for ambitious investors.
Yet, as Stephen F. Heese and Stephen M. Julius describe, buying the rights to a name and restarting operations requires years of dedication.
The two, who were classmates at Harvard Business School in the 1980s, manage their own capital at Stellican, an investment firm. Their goal: to seek out so-called heritage brands — those remembered for their high quality and authenticity — and rebuild a company. One project is the revival of Chris-Craft, once the largest pleasure boat manufacturer in the United States.
The notion of buying and resurrecting a beloved brand can be appealing across product categories, as reflected by the current bidding dance for Hostess or the woefully long ordeal of Saab, which was sold to Chinese and Japanese investors last year.
Chris-Craft, which Stellican now operates, was known for its meticulous design and use of wood and chrome. Its boats were widely sought after and associated with the many celebrities and public figures who owned them, including Katharine Hepburn, Frank Sinatra and Presidents Franklin Delano Roosevelt and John F. Kennedy. That image made it appealing to Stellican’s principals.
Yet, while nostalgia can be a powerful marketing tool, business school case studies are filled with would-be white knights that needed more than money to succeed. For example, Excelsior Henderson, a motorcycle maker twice rescued from bankruptcy, ultimately failed. Yet, Triumph Motorcycles was revived in 1984 and has operated since.
“Brands are not like tech start-ups where there is a template — X number of years to prototype, X number of years to harvest,” said Nancy F. Koehn, a Harvard Business School marketing professor. “A big piece of it is art; there’s an alchemy to it.”
The death and rebirth of Chris-Craft played out over decades. The company was founded by Christopher Columbus Smith, who built his first vessel in 1874 and soon developed a reputation as a master. The Smith family sold Chris-Craft in 1960, around the time fiberglass began displacing wood as the material of choice for boats.
By 1968, Chris-Craft had been sold to the media mogul Herb Siegel. It stopped making wood boats, and expanded beyond powerboats, adding sailboats and houseboats to its offerings. Market share and profits declined.
Enter Stellican. Mr. Julius, with assistance from Mr. Heese, had previously resuscitated Riva, a premium Italian boat maker, in 1998. He sold it to the Italian yacht company Ferretti Group in 2000.
Before joining forces for the Riva deal, Mr. Julius and Mr. Heese took different paths after Harvard. Mr. Julius started his career with the Boston Consulting Group and eventually moved to London. Mr. Heese, a certified public accountant by training, headed to what was then Price Waterhouse and later to the Erico International Corporation, a privately held manufacturer of electrical and mechanical hardware.
In 1991, Mr. Julius formed Stellican as an advisory and investment vehicle for his family’s assets. In 1998, while living in Italy, he called Mr. Heese, who was in the United States, to ask if he could help set up distribution in the United States for Riva. Mr. Heese officially joined Stellican in 2001, and the partners began work on the Chris-Craft deal.
Although the two would not discuss their firm’s financial returns, they say they expect internal return rates higher than 35 percent on their investments.
Stellican owns no more than two companies at once, and typically has an investment ceiling of $ 10 million. “We put all our eggs in one or two baskets,” Mr. Julius said.
Chris-Craft’s path to revival was tortuous. In 1981, the Chris-Craft boatyard was bought by G. Dale Murray, but Mr. Siegel retained rights to the Chris-Craft name.
Mr. Murray’s company went bankrupt in 1988, and was bought by the Outboard Marine Corporation, which sold several brands of boats as well as outboard engines, before going bankrupt in 2001. After Mr. Heese read about the bankruptcy, he contacted Mr. Julius.
Stellican acquired the assets of Chris-Craft (finished and unfinished boats) and the trademark for the name in separate transactions. The complicated process of acquiring the assets included a 12-hour, 20-way auction held in a conference room at the Chicago office of the law firm Skadden, Arps, Meagher, Slate & Flom.
Four hundred industry players gathered, all competing for the Chris-Craft assets. Mr. Julius, bidding on behalf of Stellican, lost out to the owner of Genmar Industries, Irwin Jacobs, who had teamed up with Bombardier to buy all of Outboard Marine’s assets for $ 95 million.
As he left the room, Mr. Julius told Mr. Jacobs to call him if he ever wanted to sell Chris-Craft. That call came just days later. In March 2001, Stellican bought the Chris-Craft assets from Genmar for $ 5 million.
Acquiring the Chris-Craft name, which was still owned by Mr. Siegel, was next. But Mr. Siegel refused to sell the name rights to Stellican. So, when Mr. Julius learned Mr. Siegel was in the process of selling his media company, Chris-Craft Industries, to Rupert Murdoch’s News Corporation, he approached Mr. Murdoch directly.
They reached a deal that enabled Stellican to buy the brand for $ 5 million.
Restarting operations was a bit more daunting. During the decades when Chris-Craft languished, its products had become middle market, Mr. Julius said. Scrapping the old product line was Stellican’s first order of business.
“It was always, ‘I remember,’ followed by a smile and a positive memory,” he said. Chris-Craft evoked the innocence and promise of post-World War II America — and Henry Fonda piloting a 1950s model in “On Golden Pond.” Building products that fulfilled that promise became their mantra, Mr. Heese said.
Restoring Chris-Craft also required rebuilding its dealer network. Mr. Julius said that dealers were initially skeptical that the type of customer he described — one obsessed with beauty and performance, not price — existed. The company makes 20- to 36-foot boats whose prices range from about $ 50,000 to $ 550,000.
He had to sell his products to dealers and feel comfortable they could sell them to customers.
Cost control also remained important, a role falling to Mr. Heese, who signs every check as chief executive. “We’re very hard-nosed when it comes to investing our own money,” he said.
Chris-Craft continues to bolster its dealer network worldwide. In June, the company plans to release a line of Chris-Craft branded sports apparel for a wider market. The company just signed a deal with IMG, which will serve as its licensing agent for watches, sunglasses and toys.
After starting at zero, Chris-Craft sales were $ 32 million in 2012. Its high was $ 60 million in 2008.
In between, Stellican bought Indian Motorcycles in 2006, turned it around, and sold it to Polaris Industries in 2011.
The partners acknowledge that their efforts may not have worked at a traditional private equity firm, most of which seek companies with positive cash flows.
Product innovation separates the winners from the losers when it comes to brand revivals, said Scott Galloway, a marketing professor at the Stern School of Business at New York University. “Brands lose value because they get fat, dumb and happy,” he said.
Although Stellican has received attractive offers for Chris-Craft, it plans to hold onto it for now. Mr. Heese said he was in no hurry to begin chasing deals again, a process he described as “gut-wrenching.”
“When you’re buying a company that’s in bankruptcy, you’re sitting across from people who screwed up,” Mr. Heese said. “They’re not dumb — they just got one thing wrong,” he said.