Employees of Channel Islands buy the company from Burton
Fourteen years after the world's biggest snowboard comapny bought the world's largest surfboard company, the sale has been reversed.
Overnight, Burton Snowboards agreed to terms for the sale of Channel Islands Surfboards brand to CI Surfboards LLC, which is led by shaper Britt Merrick and comprised of the Channel Islands management team, with employees and teamriders also sharing equity in the sale.
The exact details of the acquisition are unknown, however it can be chalked up as a good news story in light of the many surf companies who, since the turn of the century, were acquired by larger non-endemic companies and subsequently found themselves handballed between financial institutions, trading on heritage, with an ever-diminishing impact on surf culture.
Channel Islands, meanwhile, will remain in the hands of surfers.
Says Britt Merrick: “I literally grew up in my mum and dad’s surfboard factory, and was there to see how hard they and their whole family of employees worked to make Channel Islands one of the most highly regarded board builders in the world.”
“This opportunity to take over ownership with my lifelong friends that work here as well as having co-ownership with many of our top team riders is a dream come true for me—and has us all super pumped for what the future holds.”
Channel Islands was sold to Burton in 2006 with the promise of expanding its international influence and incorporation of new material and technologies into traditional board construction. Shortly afterwards the surf industry was pummelled by the GFC, however Burton/Channel Islands recovered to increase their North American distribution out of the Santa Barbara factory, and also establish manufacturing agreements around the world.
However, the promise of newer material and technologies was never realised with PU/PE remaining the mainstay of the Channel Islands fleet, and the much vaunted Spine Tek reinforcement a fibreglass-splint similar to that used by many board labels.
Burton, which last year earnt USD $400 million, was caught in the COVID firing line when the majority of North American snow resorts closed down earlier this year. As well as shedding costs, continuing political and economic uncertainty are also likely to have played a part in the decision.
The transaction from Burton Snowboards to CI Surfboards LLC is expected to be complete by early 2021.
Comments
Stu > I take it Burton is a private company; so no financial data anywhere? It would be great to understand where the money tree is/is heading towards? > RR
You're right RR, Burton is private so the sale is behind closed doors. However, if you're wondering about the financial status of each company, Burton has been hit pretty hard by COVID while CI has had a shot in the arm courtesy of increased board sales in the US (same as board labels here) and Asian board manufacturers getting slowly choked.
Numbers aside, allowing CI employees to buy their company back is a sweetheart deal by Burton.
thanks stu > I was with a shaper the other day who has a AKU machine and recently done a deal with CI > such that he prints to their specs and hand-finishes. Whilst he is obviously getting paid; I didn't get the impression it was a deal he was happy with as he no longer had hours in the day for customs and was referring to piece rate in dickensian terms. I'm always wondering about the formula - local shaper vs. branded shaper - is it worth the risk of going local vs. proven international design. My bias is local, personal relationships; but is that technically sensible, am I riding nostalgia?
No you are spot on. Everybody has these computer files and they can micro design them and we have a blank factory here as well. Plus all the brands come in for local ding fixes and the shapers get to forensically examine them. Very few local shapers down our way as the 40 something age group have totally ignored them and gone name brands. The old farts and 30's and under are keeping it local and, as Stu said, they are booming at present. My shaper knows some of these slaves who are great shapers in their own right being used to finish off pre shapes for name brands. Real shame and a bit of cultural cringe if you ask me.
RR,
I always ride local because I'd rather my money went to people I know. It's one of the few things unique to surf culture - equipment being made locally.
Also, your comment about risk, it's worth keeping in mind that most shapers using software and a cutter have access to the files of all those "proven international designs". This is the digital age after all, files are easily replicated, boards are easily scanned and copied.
It might be a hit to the ego of a local shaper to request, say, a version of the Channel Island Fred Rubble, but most of them could do it.
Have a read:
https://www.swellnet.com/news/surfpolitik/2015/05/22/shaping-machines-and-cut-and-paste-modern-design
Hey Stu,
I am at Cronulla. I have a twinnie that I just love to death, but my shaper past away last year and they have closed shop completely. The board is getting a bit worse for wear and I would love to replicate it. Know of anyone who actually has a machine that could copy the board.
Hey FrazP, sorry about the delay replying. Have a chat with Dylan at DP Surfboards.
Hey Stu. Could you elaborate on the "Asian board manufacturers getting slowly choked" comment. Not sure I've heard that anywhere before. Is there an explanation for it?
Peter Schroff is slowly choking Asian manufacturers with his bare hands one by one.
I think...
Wouldn't he use a chainsaw?
Ha.. Peter's Schizophrenic drama has actually done nothing. He is talking to a very small group of people that just watch his stuff to see how Manic he can be week to week.
Yeah icandig, if you think back to the noughties, there was a period when local/regional shapers feared for their profession as the movement to SE Asian manufacturing gathered pace. For a while it felt like only two kinds of domestic shapers would survive: backyarders, and large labels such as DHD, JS, et al, who could achieve the economies of scale needed to compete.
The regional shaper who made their own boards was on borrowed time. By 'regional shaper' I mean the guys that were happy to service the surfers on their coast, who either couldn't or didn't want to inject the capital to take them to the next level. If they were going to survive it'd be by sending rice paper decals off to an address somewhere in SE Asia. Totally hands off; regional shaping as an import/export business.
Around the same time, the price of cutting machines and software dropped, new operations opened up, or existing cutters bought second machines etc, increasing competition and stabilising costs. This was augmented by a shift in manufacturung with the outsourcing of laminating and finishing, streamlining the process, again putting a lid on costs.
The combined effect was a more dynamic domestic industry: more choice, faster turnaround, and cheaper end product, and also the survival and subsequent proliferation of the regional board label. That category of label is doing very well, especially consideing their once-threatened status.
A side-effect of all this was that the burgeoning Asian board industry was outflanked. Except for the big guys with global distribution (Firewire, SD, GSI...though I note they're now manufacturing domestically in Europe), Asian manufacturers now deal with the low end of the market. This has precipitated (accelerated?) the notion of Asian manufacturing as inferior.
By and large these dynamics apply to both the US and Oz, however in the States the 'choking' was also kicked along by the introduction of a 15% tariff on Asian surfboards, further diminishing any advantage they may have had.
Thanks Stu. I'll have to re-read as I skimmed on my way to work. I reckon there might bigger story / case study there somewhere. Definitely something I'd like to know more about. Cheers.
Hi Stu, where are you getting your info? I don't think it's quite right.
Some updates for you.
The following brands manufacturer in Asia and have done for years: ( not too much low end here )
Lost
JS
DHD
HaydenShapes
McCoy
DMS
The 15% Duty is only on Chinese made product into the USA. Prices were adjusted accordingly. Sales haven't changed.
In Australia much of the industry closed down when Job Keeper was announced despite demand for domestically made product going through the roof.
Current lead time on domestically made product is 5 months or 20+ Weeks. Not sure who is getting choked.
DMS still manufactures locally. It just started last year to have part of its production in Bali.
Jeez the CI boyz must be chocking up a fair bit of OT to be able to whip the hat around and buy the company. Sure beats the friday arvo box of longnecks.
Yes, serious OT for the CI employees and a serious employee share scheme! The article mentions Burton US$400M earnings last year?!! I would have thought Burton's earnings would dwarf CI's outside of the temporary Covid-19 hit. Burton founder Jake Burton passed away last November so that may have had an influence on the family deciding to sell?
originally Jake Burton bought CI so he had the biggest snowbaord Co and surfboard Co's in the World....$15m USD was a very nice price for the Merrick family ...but after Al stopped shaping and all the great team riders left ( kelly/Rob /Taylor etc) CI's figures/numbers dropped dramatically.....there were no new technologies as promised...Jake died of cancer , and now CI is back where it started , in the hands of the Merrick family and employees.....great story and I am sure CI will be a lot stronger now!
"... with employees and teamriders also sharing equity in the sale."
and
“This opportunity to take over ownership with my lifelong friends that work here as well as having co-ownership with many of our top team riders .."
IMV, this is where it's at. Companies/businesses owned by the people that actually create the profit: the workers.
If anyone is interested in some of the history, "Anarchism and Anarcho-Syndycalism" by Rudolf Rocker is a great short read - about 50 pages of the history of workers organising and calling the shots. What is the point of work? Wage Slavery was the term used in society at the beginning of the industrial revolution for work earning a wage.. it was look down upon as a form of slavery.
Anyway, I appreciate that you Mob are a well read bunch...
all the best all.
Anarcho-Syndicalism was big in universities during the 70s and 80s and led to a range of democratic decision making bodies, mostly in the public sector. The wrench to the right has re-established hierarchical top down structures everywhere coinciding with ever increasing inequality.
maybe the future moving forward can incorporate the use of 6oz cloth on the creations
I like CI boards and i would like to ride one, But i try to buy boards from Aussie shapers.Even if The Aussie shapers get them made overseas. So as ridiculous as that sounds maybe it worth buying from a company that supports its own people. Unlike some Aussie shapers , Who are clearly exploiting cheap labour and maximising their profits. And them selling them at a price as though they were made here.
Burton would not have sold if Channel Islands were a major money-maker. They (likely) sold because it is not.
Capitalism does not run on sentiment.
G'Day John,
Aside from the platitudes in the press release there's no info on the sale, yet I've been puzzling over it. Partly that's to do with a surf company returning to surfers' hands, which is always a good thing. The experiment of seeking expertise outside of the surfing world is a failed one, it resulted in lumbering companies struggling to speak to their own audience and ultimately a disconnect between boardroom and beach.
But the commercial aspect? You're right, capitalism follows a predisposed set of rules, yet through second-hand info and my own speculation I thought CI was faring well and that it was Burton whose sales were sluggish. Following that - and applying the aforementioned rationale - you think they'd hold onto CI, not sever the arm that's performing well and further sink the Burton operation.
So perhaps CI wasn't performing well and Burton are just trying to cut costs?
Considering it was sold back to CI and not offloaded to someone else (who'd do due diligence) it's possible. If CI's market share scales back - fewer team riders, and fewer board buffs, rumoured at 30K a year - then we could assume that was the case. Watch this space I guess.
Other matters:
Increasingly, Burton and CI had less overlap. Burton bought CI in the wake of Clark Foam closing when new tech was being tested and the PU/PE hegemony was assumed over. Popular belief had future surfboards benefitting from snowboard R&D. Fourteen years later it's mostly PU/PE again.
Also, with Jake Burton dying last year, the architect of the 2006 sale could no longer advocate for the union.
I remember Kelly trying to buy CI off Burton......as the policy that Burton implemented was to extend credit terms to 90-120-180days , give very generous amounts of free boards to staff , but they must relinquish 60% of their store space/Board racks to CI. I met with Mark Price in Japan a year later , who explained to me why FW had gone to a consignment model to counteract CI.....then all the big Brands Lost/JS/DHD had to follow suit with consignment deals also......which ended in disaster a couple of years ago with market saturation.......so Burton 's business policy failed , and with him a lot of brands also got hurt so here we are again......boom for locally made boards....but we have huge problems getting good s/bd workers , and now there is a material shortage....hopefully there will be a cleansing of the market place , so CI's business will be better for everybody!
I am continually impressed with your business acumen Brutus.
Those practices of consignment inventory and extended terms are still going on in the USA. FW forced a lot of other brands to go down that road. Net never is the technical term.
@john.callahan
Correct, capitalism does not run on sentiment. But it’s possible you’ve conflated your logic with bias as to the reasoning.
Although I don’t know the specific circumstances of the CI/Burton deal, it is not uncommon for a parent company to sell off prime assets for a multitude of reasons including meeting debt covenants, providing operating cashflow or restructuring core operations. I could give you many non-surfing industry examples of this happening on an every day basis, but one that stands out that might resonate was the sale of Nixon by Billabong. If Burton is failing, and CI doing well, it is certainly feasible from a business perspective that they sold CI at this point in time. (Note: I am not suggesting Burton is failing)
You question if they were the major money-maker? CI is a great brand, but on the P&L it makes less top-line $ than Burton's accessory department. I bet that Burton took a loss on this investment, but good to see it back in the hands of authentic surfers and great team.
Yeah, some speculation involved on my behalf RE financial standings and motivation for sale, but thoroughly agree with your assessment about the outcome. It's fantastic news for CI and for surfing in general.
...unlike socialism.
Always went with local shapers in Oz and Bali until CI started their local production in Bali. Knew Cutch, the head shaper and started getting CI's. Never had one that did not go unreal with the various models.
Agree.
These are amongst two of the best boards I’ve ever owned. Bali CI by Cutch..
There could have also been a clause in the 2006 agreement that if Burton wished to offload Channel Islands in the future, CI would be given the right of first refusal -
Also a point to note that at one point Burton (CI)was in litigation with a consumer.
The "surf user" took CI to court after being injured whilst surfing .
Not sure of actual details , just that it render the sale of CI not a possibility.
Great news on everyone at C I joining forces,
Best of luck with that........
Things will change, especially once the reality sets in.
Operating Costs , payroll, productivity, moderating ideas,
could be some bruised egos from this one.
not bad shapes but super dodgy glass jobs, simply fall to bits
Burton needed cash & had paid to much for it originaly.
I reckon (guess) they got it back at a heavily discounted price.
Good boards, that are manufactured here. As is Spinetek, developed by Shapers Aust.
Quiksilver buying Rossignal was probably the worst deal a surf company has ever made. The French company had very high production costs and their skis were poor cousins to Volkl and especially Atomic. Rossignal were essentially a mid-range product in a very crowded marketplace.
The ski / snowboard hardware industry is extremely fickle, highly competitive, dependent on the weather, and economic conditions.
Burton is a great company but if CI didn't pick it up cheap and debt financed the deal, it could well end up being a shocker.