Mergers & Acquisitions

Cheap money, astronomical competition

Private equity frenzy hits hot tub industry.

Several milestones hit the private equity world in recent years. In 2021, a record 24,722 deals were announced and a record $1.32 trillion dry powder (or cash that was free to be invested) was still undeployed as of September 2021.

Earlier this year, private equity deals were also announced in the hot tub industry.

“The private equity bank role has been at a massive peak for a while and the number of private equity firms has radically gone up,” says Jerry Greer, co-founder of Core Covers, a spa cover manufacturing company based in San Diego. In February, Mitre Peak Capital, a private equity firm in Dallas, bought out Greer’s business partner Robert Ghelerter, who was ready to retire. “Those companies don’t make money until they buy things,” Greer says. “And so a massive amount of inexpensive capital combined with a massive amount of competition for small to midmarket businesses, which is still hot. There’s still a ton of activity going on, even with potential storm clouds on the horizon. Right now, there’s more thoughtfulness being applied rather than the frothy exuberance of 2021.”

One of the more notable spa industry mergers came this past January, when Monomoy Capital Partners, a New York middle-market private investment firm, announced its acquisition of Artesian Spas and Marquis Hot Tubs, headquartered in Las Vegas and Independence, Oregon, respectively. The consolidation united the two hot tub companies to create a pool and spa wellness platform.  

Jim Johnston, vice president of sales and marketing at Marquis, explains that they were motivated to sell to Monomoy because of its vision and record of successfully growing manufacturing businesses. 

“We wanted to build a stronger company that would go on and do more,” Johnston says. “We needed more horsepower out of somebody like Monomoy to come in and help make that happen.”

In Johnston’s view, the interest from private equity in the hot tub industry isn’t sudden. He says the fact that more people were purchasing what he calls “quality-of-life drivers” was a good indicator. 

Monomoy is very data driven, Johnston adds, so they spend a lot of time looking at trends and have experts who contribute insights into what the data represents. 

“There’s a strong reason to be investing in this world right now,” he says. 

A history repeated

Of course, the hot tub industry is no stranger to mergers and acquisitions, nor to the role of private equity — or even public equity, as in the case of Watkins Wellness in Vista, California, and its parent company Masco Corp., in Livonia, Michigan.

Jacuzzi Group, Watkins, MAAX Spas, LPI and others have scooped up competitors when the right opportunities arose. Private groups have bought out founders in the case of Coast Spas, in Langley, Canada. Chandler, Arizona’s MAAX Spas and Chino Hills, California–based Jacuzzi have rotated parent companies several times. Often when these transitions are made between two private entities, the transaction isn’t necessarily publicly disclosed, ensuring this is a woefully incomplete rundown.

That being said, the list of investor-owned hot tub companies is still much smaller than the list of those that are privately owned. And many don’t see that changing any time soon. “I don’t believe it will be industrywide,” Greer says. “We’re too fragmented and as an industry, we’re not a huge dollar category. There’s only so much that will be consolidated.”

For an industry that prides itself on its entrepreneurial, bootstraps mentality, to some the idea of a more corporate environment makes them uneasy. The benefit to the companies that do find themselves as part of bigger conglomerates is, in addition to deeper pockets, sometimes a greater attention to best practices. 

“In that way, I expect that will raise the tide for the entire industry,” Greer says. “We’ve seen that with a couple big OEMs that have been owned by conglomerates or private equity.”

But Greer doesn’t see the hot tub industry losing any of its personality or relationships any time soon.

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“What I love is [consolidation] creates opportunities for brands that are relationship oriented,” Greer says. “If [a retailer] wants the cell phone number of the [OEM] owner or the CEO, there’s going to continue to be good brands that have that dynamic as well.”

Retailers are now part of the mix

In 2018, Jeff Bailey bought out his partner Dan Sine to become the sole owner of Spring Dance Hot Tubs, a multistore hot tub retail business with locations around Philadelphia and New Jersey. In 2022, Bailey sold the company to Leslie’s, a publicly traded swimming pool and hot tub retailer with locations across the United States. While there had been changes in Bailey’s personal life that made selling attractive, it hadn’t been his plan to sell the business so quickly. 

“In my case, I wanted to raise my hand to see what’s out there,” Bailey says. “Even though I’ve owned the business in its entirety for four years, I was a partner for nearly 23.” 

Years ago, Bailey was advised that you don’t get to pick the day you sell your business, it picks you. The Leslie’s offer was an opportunity that he couldn’t pass up and one that wouldn’t have been available in the recent past. 

“About five, six years ago, there was a nervousness among the hot tub manufacturers about their aging dealer network,” Bailey says. “There weren’t [succession] options like today, where you have private equity coming in and companies wanting to expand into this business. Your only option before was to sell to a family member or a person in the business, and that’s very complicated.” 

Leslie’s has purchased several hot tub businesses, starting in 2018 with Valley Pool & Spa, a Pennsylvania-based retailer. Its acquisitions certainly have the industry talking, but it’s not the only buyer out there. In May, it was announced that Watson’s, a large Cincinnati-based home store that offers a wide variety of home furnishings and leisure products as well as hot tubs, purchased Detroit-based Allstate Home Leisure, an outdoor furnishings, pools, spas and home recreation products specialty retailer. Also in 2018, a group of Canadian pool professionals associated with Pioneer Family Pools of Ontario and Club Piscine Super Fitness of Quebec became the owners of Namco Pools of Rocky Hill, Connecticut, purchasing some of its former assets, including the name. 

Longtime spa industry member Norm Coburn of New England Spas in Massachusetts feels the acquisition trend will mean fewer mom-and-pop dealers moving forward, as well as fewer manufacturers managing more brands. 

“As I have seen my peers aging over the last 38 years, it makes sense to have an exit strategy or succession plan,” Coburn says. “There are many dealerships with many leaders and managers totally capable of taking their companies forward, as well as some that employ family members in a good position to take the reins. Each situation is different.”

For Coburn, though, what’s most important to him is that his customers and teammates are cared for in the best way possible.

This was also important to Bailey as he structured his deal with Leslie’s, making sure there was plenty of overlap with him still at the helm. He will be running the store’s operations for at least the next year. “I have to constantly remind myself I don’t own the business anymore,” Bailey says. 

For retailers who may look at these acquisitions with some yearning, or who are trying to put together their own succession plan, Bailey says it’s important to start having conversations and seek out people who may be primed to invest. But you have to be prepared to sell before you may be ready, so Bailey agrees that having the books in order is essential. 

“You have to make sure you have focused on the financials of your business,” Bailey says. 

Mergers, acquisitions and ownership transitions are part of the lifecycle of any business, going through times of frothy exuberance or thoughtfulness. How long that cycle lasts is difficult to say — but Greer doesn’t believe the industry has settled just yet. 

“I wouldn’t be surprised,” he says, “if there are a couple more announcements between here and yearend.”