Royal Caribbean is buying majority stake in Silversea for $1bn

We were told at the presentation yesterday that RCL has assumed SS's future financial obligations (for the Moon and Dawn) as well as the billion for the 66.7% - the debts are about another billion.

And is it just me, or does it seem like only a nano second ago all these big deals were concluded in millions, now everything is billions ... sigh

The high debt was likely a factor in the 10% advance discount.

Offering discounts to prop up cash flow is oft a sign of financial stress.

To that end, I will now stop worrying about ss going broke before I sail… :-)

This will be a boring financial post. I just listened to the RCCL investor conference call recording, which is available through the RCCL investor relations website. This adds some new information, which is interesting because AFAIK it has not previously been exposed here.

The deal is expected to close in the second half of 2018. There is about $500m of net debt in the [silversea] business. The multiple of normalised EBITDA [for the acquisition] was about 14x. However, this is expected to be less than 11x after taking into account the "at least" $50 million a year synergies that RCCL anticipates, after completion. Most of the synergies are expected to come from cost reductions, though they were careful to highlight areas such as insurance, office costs and credit card fees. They declined to answer two questions about whether there was an option (or puts/calls) to acquire the rest of Silversea, so that seems to mean "yes"; not surprising.

We already know that the purchase price was $1 billion for 66.7%, plus performance-related (up to) 467,000 shares, today worth just over $500 million if you could sell them.

Now my financial arithmetic is a bit rusty, but IIRC, Enterprise Value (EV) includes net debt, and the deal was based on a $2 billion EV. But we already have $1 billion cash, $0.5 billion paper and $0.5 billion debt. So that is $2 billion EV for 67% and that makes EV for the whole of Silversea $3 billion, based on this deal.

If EBITDA was 14x a $3 billion EV, that would be about $215 million a year of cash flow. Revenue might be around $600 million, but this is based on RCCL's financials, so it is guesswork. (But it suggests revenue of about $500-$550 per guest per day if every ship were full, all year round, which may be in the right ball park.)

In the context of that much cash flow, $500 million of debt doesn't look dangerously high.

In summary, Silversea's owner seems to have done a brilliant deal for himself. As for the rest of us, we'll see.

Cool info, unfathomable. Thanks for (not) boring us with it.

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Well done unfathomable.

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Thanks for the numbers unfathomable. Not rusty at all.

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Not boring at all, unfathomable. So far the market seems to like the deal too. Thanks for the numbers.

I think it will be a different corporate culture when it is no longer privately owned. No more private family parties, tenders and other special privileges. These sort of things tend to percolate from the top down. I hope it means an end to the charity charge too!

What sort of a difference it will make to the paying guest experience remains to be seen. I hope the frontline staff will still be paid well and it won’t become one of those experiences where everyone has their hand out for a tip in order to get the same level of care we’re used to having included in the fare paid.

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And by the way, Manfredi, I'm sure that however noble your fathers vision was of owning 12 ships in your fleet, the recent sellout of 2/3rds of your company and relinquishment of control, somehow might fall short of what he had hoped for. I do sincerely hope though that you enjoy your billion dollars.

Manfredi in his dream over-extended himself and had to sell out, that is the usual result of over-confidence and "cockiness".

I also assume the family charity can now be financed from his newfound personal wealth and it will no longer be imposed on the paying passengers to check our conscience and will be withdrawn from the ships bills forthwith.

I also assume the family charity can now be financed from his newfound personal wealth and it will no longer be imposed on the paying passengers to check our conscience and will be withdrawn from the ships bills forthwith.

The charity charge was not imposed on us as we deleted it at Reception whilst completing embarkation.Never an issue.

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The charity charge was not imposed on us as we deleted it at Reception whilst completing embarkation.Never an issue.

 

 

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It was imposed on you but you chose to have it removed. A big difference from not being present.

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Manfredi in his dream over-extended himself and had to sell out, that is the usual result of over-confidence and "cockiness".

I think it is more likely that he cleverly developed and grew the higher-margin expeditions business, making Silversea a more attractive target, and then he received or negotiated an absolutely fantastic deal. 14-times earnings (EBITDA) for a private company being bought out by a public company is really excellent (8-times is more typical) and even if he doesn't get any of the performance-related shares, (a) two-thirds of the consideration is in cash, (b) the cash component is up front and © the multiple is still 10.5-times. Some offers are too good to refuse. I'm impressed by what he has done -- from a financial perspective.

It was imposed on you but you chose to have it removed. A big difference from not being present.

Whilst that was previously true for us, our last cruise (and I’ve noticed this mentioned by others) this charity “option” was not on my bill and was an opt in scenario as it should be. I did voice my thoughts on the board this may be because I’ve removed it previously so now a default on my account, but don’t know for sure. But I can say I did not ask on my last cruise to have it taken off as it was never there.

Mmm. I don't think the numbers support that view. The amount of net debt is less than twice the cash flow, which isn't over-reaching unless the interest is outrageous: unlikely, assuming that the debt was secured on assets (ships).

 

I think it is more likely that he … absolutely fantastic deal. 14-times earnings (EBITDA) for a private company being bought out by a public company ….

But he sold the rights to directing his "family business", is that a victory? More likely, he is no longer able to handle the heavy debt, and accepts becoming a subordinate! While he is still wealthy, he has lost "family pride" which is known to be so important to Italians, and have to obey the new owners if he wishes to keep his job.

Sometimes family businesses are sold when subsequent generations have indicated they don’t want (or are incapable) to take on the responsibilities of leadership of the family business. Quite common with the third generation, who have grown up with wealth and privilege and don’t have the drive and ambitions of their parents and grandparents.

Selling is a viable retirement/exit strategy. Selling 2/3s, with the option to sell the last third makes the transition a bit more gradual.

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This will be a boring financial post. I just listened to the RCCL investor conference call recording, which is available through the RCCL investor relations website. This adds some new information, which is interesting because AFAIK it has not previously been exposed here.

 

The deal is expected to close in the second half of 2018. There is about $500m of net debt in the [silversea] business. The multiple of normalised EBITDA [for the acquisition] was about 14x. However, this is expected to be less than 11x after taking into account the "at least" $50 million a year synergies that RCCL anticipates, after completion. Most of the synergies are expected to come from cost reductions, though they were careful to highlight areas such as insurance, office costs and credit card fees. They declined to answer two questions about whether there was an option (or puts/calls) to acquire the rest of Silversea, so that seems to mean "yes"; not surprising.

 

We already know that the purchase price was $1 billion for 66.7%, plus performance-related (up to) 467,000 shares, today worth just over $500 million if you could sell them.

 

Now my financial arithmetic is a bit rusty, but IIRC, Enterprise Value (EV) includes net debt, and the deal was based on a $2 billion EV. But we already have $1 billion cash, $0.5 billion paper and $0.5 billion debt. So that is $2 billion EV for 67% and that makes EV for the whole of Silversea $3 billion, based on this deal.

 

If EBITDA was 14x a $3 billion EV, that would be about $215 million a year of cash flow. Revenue might be around $600 million, but this is based on RCCL's financials, so it is guesswork. (But it suggests revenue of about $500-$550 per guest per day if every ship were full, all year round, which may be in the right ball park.)

 

In the context of that much cash flow, $500 million of debt doesn't look dangerously high.

 

In summary, Silversea's owner seems to have done a brilliant deal for himself. As for the rest of us, we'll see.

Brilliant Deal is an understatement. RCL overpaid in a big way.

Silversea was the only luxury brand left without a corporate owner, so maybe that is why they took the deal.

I think your enterprise value may be a little high, but only because no one knows all the details of this transaction.

Not sure you can put the performance related payments in the EV as we don't know the metrics of the performance or future performance and how many years that performance metrics are required. Also, I thought I heard on the call that RCL took on 100% of net debt ($500m) and if that is the case it should not be increased 33 % to get EV.

EV could be as low as $1.8 or as high as $3, as you suggest, depending on the details of the transaction.

RCL was not forthcoming on the details at all. They skirted all the detail.

RCL could have easily bought out 100% of Silversea. No problem. Easy peasy. Why not? Very interesting.

...RCL overpaid in a big way.... I think your enterprise value may be a little high, but only because no one knows all the details of this transaction. Not sure you can put the performance related payments in the EV as we don't know the metrics of the performance or future performance and how many years that performance metrics are required. Also, I thought I heard on the call that RCL took on 100% of net debt ($500m) and if that is the case it should not be increased 33 % to get EV. ... Very interesting.

We don't know a lot of things. On the surface, Manfredi is still wealthy and has kept a good deal of his money, while apparently losing "family pride" and "Italian national pride".

Imagine he had not signed contracts on the three new ship, and retired earlier, he could have a much easier time. Instead of claiming this "vision" of fourteen ships, he could claim his next generation was not interested in succeeding in the cruising business. That would also be quite understandable.

It still appears he is trying to put a brave face on overbold business misjudgement.

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Maybe the guy is getting old, fat, and tired and is looking for a slow sidle out of the business?

Maybe his dentist has a very tight schedule on his appointments?

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Over-expansionism is usually fatal, the former Renaissance Cruises (while with different causes) still comes to mind!

 

Too much self-confidence and perhaps "cockiness" is the root of downfalls.

 

"We always dreamed of a fleet of twelve ships" -- yes, but owned by some other corporate entity.

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All your posts are doom and gloom...??? A little premature to claim the sky is falling...why don’t you just keep an open mind and see what transpires...

We’re just taking a wait and see attitude, but also checking out the Ritz Carlton cruises for 2020 ...

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Thank you, Tarwood3! My sentiments exactly.

We’re just taking a wait and see attitude, but also checking out the Ritz Carlton cruises for 2020 ...

 

 

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We certainly are taking a wait and see attitude. We just had encouraging news that Silversea was able to beat the best airfare we could obtain for one-way fares to Singapore and home from Lisbon by $5,000 each! That says a lot to us about what they do well.

2019 WC?

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2019 WC?

Down the pan?