Oyster Yachts – what happened?

Luke Morris, Corporate Partner, Scrutton Bland

Essex has long been famous for its oyster beds, but it is a different type of Oyster, with a site just across the border in Wherstead, Suffolk that has recently been in the news.

Oyster Marine, famous for its prestigious yachts was recently placed into administration, much to the shock of the yachting community, and the wider business world as a whole. Founded in 1973 by well-known east coast sailor, Richard Matthews, the company was sold in 2008 to a private equity group for a reported £70m. The company was sold again in 2012 to current Dutch owners, HTP Investments BV, for just under £15m, but on 5th February 2018, the company was placed into administration. So where did it all go wrong?

The incident being blamed for the downturn in the company’s fortunes is the sinking of one of its yachts, Polina Star III, in July 2015. According to the yacht’s skipper, on a sunny day with a moderate breeze, and without apparent warning, the keel parted company with the hull of the 83-foot yacht, resulting in a large hole in the bottom of the vessel. As the yacht at the time was sailing off the cost of Spain, you can imagine the result. A catastrophic loss.

Much has been written about this incident, yet the event itself is not the focus of this article, but rather how this well-respected brand which sold for £70m ten years ago, finds itself in this position now? After all, Oyster is not the first yacht builder to build a vessel that lost its keel. Just 14 months prior to the Polina Star III sinking, the 40-foot Beneteau Cheeki Rafiki capsized mid-Atlantic after its keel fell off. All four crew were lost. It could be argued that this was a considerably more serious incident due to the tragic loss of life, yet the builder of that particular yacht is still going strong.

Oyster Marine is an iconic brand in the marine industry known for making highly customised, high-end yachts for demanding customers of not inconsiderable means. An impressive 49 different models of sailing yacht and one motor yacht were introduced since the company first started out in 1973. That’s an average of roughly one new model every 10.5 months, for which a number of hulls will be made. This type of strategy requires constant innovation, a high level of liquidity, confidence in your suppliers, and a willingness to push boundaries to exceed client expectations, which in turn can significantly increase risk.

Yet whilst Oyster took an approach which was relatively high risk, demand for their yachts remained strong. With Sterling remaining low, yachts from the UK are an increasingly attractive proposition to European buyers who get more ‘bang for their buck’ by nipping across the North Sea to purchase their new toy. Reports suggest that at the end of 2017, Oyster had an order book for 25 yachts worth a reported £80m, so why did the company’s Dutch backers pull the plug? According to Oyster’s chief executive, it was because they became impatient with delays in settling the £7.2m insurance claim relating to the loss of Polina Star III. Whilst I have no doubt this played a part in their decision, it would be a naïve investor who walked away from a £15m investment over this issue alone. By all accounts, Oyster had already absorbed the costs associated with the loss and was simply awaiting the results of arbitration to settle the claim. Whilst settlement negotiations had been ongoing for two years, surely a delay of a few more months would not be the deciding factor in an otherwise sound business relationship?

Perhaps a clearer explanation can be gleaned from the published accounts of Oyster Marine Holdings Limited. From the accounts, sales appeared to be increasing year on year, even in the period following the sinking of the Polina Star III, which implies that the impact of the disaster on the company’s reputation was limited but what the figures also show is that the company was sadly unable to translate these increasing sales into meaningful and sustainable profit. Add to this the inherent risks facing this sector and an uncomfortable picture begins to emerge which perhaps better explains the investors’ decision. Luxury yacht building, it turns out, isn’t as profitable as one might assume and for these investors, the rewards just didn’t justify the risk.

So what happens now? We are told that there is still hope for Oyster as new backers are being sought, but undoubtedly the situation is worrying for those who currently have boats in build, and of course those who have lost their job. Like many other industries, the marine industry has seen its fair share of consolidation in recent years, but any sailor will tell you that Oyster’s boats are special and if a saviour is not found for this company it will be another catastrophic loss.

Scrutton Bland work with a range of businesses throughout the region, supporting management teams in all areas of running their business operations. Contact Luke Morris at luke.morris@scruttonbland.co.uk or telephone 01206 838466.