WaterMark closes final chapter in Arcata

WaterMark announced to the press on Jan. 19 that the company had decided it was best for its business not to try to keep some offices open in Arcata, Calif., and that it would be moving all remaining operations to Portland, Ore., by Sept. 30.
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WaterMark announced to the press on Jan. 19 that the company had decided it was best for its business not to try to keep some offices open in Arcata, Calif., and that it would be moving all remaining operations (customer service, IT, credit, collections and accounts receivable) to Portland, Ore., by Sept. 30.

The announcement comes just three months after WaterMark first announced a move from Arcata to Portland, and after WaterMark stated that it was quite assuredly in its best interests to keep some of the offices operating in Arcata -- for the time being. The news first began filtering out of Arcata to the SNEWS® offices on Monday -- the day the landlord, Coast Central Realty, posted a "For Lease" sign in front of the building. Confirmation came shortly after the company held a meeting with employees on Tuesday -- unfortunately, the day after they saw that sign.

"It is unfortunate, but business is very dynamic and a company has to have the courage to adjust strategy to reflect the reality of a changing business environment," Jim Clark, WaterMark's CEO, told SNEWS®.

Clark affirmed that when the company made the announcement in October that it would be moving, the board had approved and mandated keeping the Arcata offices open as he had indicated at that time in an interview with us.

"One of the issues was a sudden increase in our rent. We had negotiated an extended year lease, but when we were finalizing the terms and conditions, the rent increased in excess of 60 percent," said Clark. "There were not a lot of options available to us in Arcata and since it was now clear rent costs were not going to be in our control, it became obvious and evident that the best decision for the company, when factoring in other business considerations, was to move all of our functions to Portland by September.

Insiders tell us that quite a number of key folks have already quit, or decided not to make the move. One of them is Chris Dannewitz, senior director of land sports business for Yakima and a 15-year veteran of the company. He's still in Arcata, but now as the vice president of business development for Thule.

When asked about specific individuals, Clark told us that Amy Buckalter, vice president of sales, as well as Mike Steck, marketing and PR, would be making the move to Portland. Larry Hewett, longtime Yakima vet and director of sales, was also likely making the move.

Of the 147 positions at the company in October 2004, 130 positions will be established at the new headquarters in Portland. Approximately 35 employees have been offered positions in Portland, and of those, 20 or so have made already made a commitment to transition to Portland, insiders tell us. The remaining 60 to 65 staff members who had thought they were staying in Arcata will be informed by Feb. 28 as to whether they will have a job opportunity in Portland, or not.

"It is important for everyone to realize that we have spent a lot of energy and resources in the last year and a half to improve our supply chain and operations and we have made huge strides as a company," said Clark. "We intend to reengineer the company's vision and product development engine with the same, focused zeal."

SNEWS® View: Well, there certainly is a lot of speculation being tossed around out there, including a story in the Eureka Times-Standard -- www.times-standard.com -- one that was essentially parroted by another trade pub later in the day. While we are always bound to protect our inside sources, as long as some of the rumor has been tossed out there, let's see if we can clear up enough to at least satisfy curiosity.

First, we find it interesting that Don Banducci, former owner of Yakima, has become a source (given that he has not been at the company in years now) for quotes that target the current company for lying and incompetence. We as journalists know that ex-owners or ex-employees may have an ax to grind. Even someone as respected as Banducci may just be stirring the pot for reaction and not stirring it to make something productive. Bottom line is, the move to Portland makes sense when looked at through an investment filter. That said, the decisions and announcements of those decisions could have certainly been handled more smoothly, with a tad more sensitivity. Seeing a "For Lease" sign on the lawn of the company you work for is not exactly comforting to employees if they have no idea what is going on.

Now let's dive into the details...
It is no secret that American Capital Strategies (ACS) -- www.americancapital.com -- and Crescent Capital Investments (CCI) -- www.crescentcapital.com -- have been in discussions regarding Confluence and WaterMark for over two years now. They have been just that -- discussions. Happens all the time in the world of private and public investment deals, should come as no surprise and is certainly nothing worth reporting. ACS is a publicly traded fund with capital resources listed at $4.8 billion as of the start of 2005, and reports $26 million invested in Confluence. CCI is a wholly-owned U.S. subsidiary of First Islamic Investment Bank of Bahrain -- www.firstislamic.com -- with a global investment portfolio that exceeds $4 billion. CCI's mission has been stated as "to source investment opportunities in the United States and monitor the performance of the acquired companies on behalf of the Bank and its investors." CCI manages First Islamic's investment in Destination Outdoors Inc., a holding company set up in August 2001 at the same time the bank acquired Yakima and melded the operations with WaterMark, a company it purchased for $40 million in June 1998. As of a financial report in 2003, First Islamic valued Destination Outdoors at $173.1 million, against $106 million invested by the bank. Playing the numbers game, it is hard to imagine reports that the company paid $90 million for Yakima. More likely, it was in the range of $70 million (or less), which is where investors placed the high valuation around the time of the acquisition.

There is little doubt in our minds that some deal is in the works -- be it (as has been rumored) ACS acquiring the watersports division from WaterMark -- or as is equally likely, and perhaps more so, First Islamic acquiring Confluence and moving it under the Destination Outdoors holding company label by merging WaterMark and Confluence into one watersports division. Destination Outdoors' (WaterMark's) brands include kayak lines Dagger, Perception and Mainstream, as well as Harmony paddlesports accessories, AT Paddles, Rhode Gear vehicle racks and Yakima. Confluence's brands include Wilderness Systems, Wave Sport and Mad River.

Again, this is wholly speculative, but the Destination Outdoors board, which is certainly directed by CCI staff, as well as select management from WaterMark, has been making some interesting strategic moves in addition to announcing a move of corporate headquarters to Portland. It has moved paddlesports management back to Easley; consolidated warehousing and distribution of boats and gear with Patterson Warehousing, a third-party shipping business based in Memphis, Tenn.; sold underperforming Sospenders to Johnson Outdoors; and shut down underperforming Yakima snowshoes.

We do know that talks heated up between ACS and CCI just over three months ago -- hmmm, around the same time that WaterMark announced it was moving corporate headquarters to Portland. Consider that ACS is publicly traded, that its stock was listed as neutral at the end of 2004, and that it reported a loss on investments as it exited 2004 -- not exactly the kind of news that would have one believe it is ready to tell investors it is a good idea to ante up significant coin to acquire more boat brands.

Consider too that First Islamic's 2003 financial report stated, "DOI has now completed many of the critical elements of integration needed to establish a powerful outdoor sporting goods platform. Going forward, management is optimistic about the prospects for equity value enhancement."Â As much as the folks in Arcata might not want to admit it, moving the headquarters to Portland, Ore., makes the company more valuable in the long run, and easier to sell, or take public in the long run.

Is it also possible that Yakima might be for sale? Anything's possible, especially considering the recent sale of Thule and the current market, but it doesn't appear logical from the outside looking in either -- unless First Islamic has lined up buyers for both Yakima and WaterMark's boat brands and is looking to exit its investment. Insiders tell us it is quite unlikely that First Islamic would go to all the trouble and expense of a move like this, in addition to all the other moves it has made with Destination Outdoors in the last year if it were just going to sell off and get out. Although, to be fair to this rumor, there is no secret Thule was in the game to purchase Yakima when First Islamic acquired it, and under new ownership, Thule is once again in an acquisition mind-set. And, we do know of several other companies that have made inquiries regarding Yakima.  

For its part, ACS has not invested any more money into Confluence, nor has it been aggressive about trying to fill the vacant CEO position. Confluence's current management team is very strong and changes in production and distribution strategies have greatly strengthened the brand in the last year -- ideally positioned for an acquisition. Of course, it isn't as if ACS is not as high on outdoor brands as in 2004 when ACS invested $30 million in Rocky and $15 million in Pelican. And in late 2003, it invested $38 million in CamelBak to support the acquisition of that company by Bear Stearns -- each of the above all have strong military ties that make them most attractive. The question is, does anyone really think ACS wants to invest $40-plus million in more boats? In an economic climate that remains unsteady? Not likely. However, once again, it's not as if ACS does not have the capital to invest if it chooses to, and there is little doubt that by combining Confluence and WaterMark's boat brands under one investment portfolio, you suddenly do have a very attractive package that, properly managed and operated, could play very well at all tiers of distribution.

Then again…speculation is just that…guessing with limited knowledge and drawing conclusions based on historic evidence, not actual documentation. Something will likely be bought or sold and it will involve WaterMark and possibly Confluence -- that much we are sure of…we think. Naturally, it is possible an as-yet-unmentioned company will or has shown interest in playing with boats or racks. Stay tuned.

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