Dive Industry Market Data | Scuba Diving Statistics
(Updated) Aqualung Can’t Pay Its Debt While The Scuba Diving Equipment Market Is Up 7.5% & Scubapro, 13.7%
Who owns Aqualung? It is in financial distress! Meanwhile, the dive gear market grew in 2022 but remained below pre-pandemic levels.
Darcy Kieran is the author of the reference book “Scuba Diving Industry Market Size & Statistics.”
UPDATED on JUNE 28, 2023, with additional information.
In this Scubanomics update on the scuba diving equipment market, we will examine the deep financial problems Aqualung is currently facing, and how Scubapro is rebounding worldwide from the pandemic. But first, let’s look at the dive gear market in the USA in 2022 to put things in perspective.
Scuba Diving Equipment Market in The USA
After a drop of 20% in the first year of the pandemic (2020), dive gear sales in the USA grew by 2.5% in the second year of the COVID-19 pandemic (2021) and an additional 7.5% last year (2022).
With 213.4 million dollars of scuba diving equipment sales in the USA at wholesale in 2022, the scuba diving equipment market remained 11.9% below its pre-pandemic level of $242.1M.
It may sound like we are doing fine until we look at a 45.9% growth in sales of water sports equipment in 2022 compared to 2019.
Overall, the pandemic has actually been a boon for the outdoor and water sports industry — except for scuba diving.
Dive Gear Market vs. Scuba Certifications & Participation in the USA
Scuba diving equipment sales did not fluctuate as drastically as entry-level open-water certification numbers did during the pandemic, but both are now reporting similar levels compared to 2019.
While dive gear sales in 2022 were 11.9% below pre-pandemic levels, certifications were 12.4% below. Since the dive industry was on a slowly declining trend before COVID-19, we should not expect to get back to pre-pandemic levels until a dive industry stakeholder brings in real innovation to re-energize the sector.
It is interesting, though, that participation in scuba diving in the USA did not decline as much as sales of scuba diving equipment and entry-level open-water diver courses.
This may be a result of another trend we noticed over the last decade in the dive industry: scuba divers in recent years tend to buy less equipment, preferring to travel light and participate in a variety of activities during their trips. Therefore, dive gear sales may trend lower than scuba diving activities in the dive industry.
As for the certification numbers, they may also be underestimating the market since these statistics from DEMA are based only on three certification agencies: PADI, SDI, and NAUI. And we believe SSI has steadily been grabbing market shares from PADI.
Now let’s look at Aqualung and Scubapro, two major dive equipment manufacturers.
Aqualung On The Verge of Bankruptcy
Aqualung is the largest dive gear manufacturer in the world. And it is in trouble! Who owns Aqualung? And how did they get there?
At the end of the 2021 fiscal year, Aqualung’s debt was 13.6 times its EBITDA of 7.4M euros. EBITDA is an acronym for earnings before interest, taxes, depreciation, and amortization.
Generally, debt-to-EBITDA ratios higher than 3 or 4 serve as “red flags,” indicating that the company may be financially distressed in the future. Some financial analysts say that 5 may also be acceptable. But either way, 13.6 is a severe situation.
In June 2022, a French court ordered Aqualung to find a remedy to its operational and financial hardships within four months. As of this week, Aqualung is still in “talks” about debt restructuring.
Meanwhile, they have repeatedly postponed the annual general meeting for the fiscal year 2021, with an additional postponement request filed earlier this year.
How did Aqualung get there? And where are they heading?
Aqualung faced the same pandemic as everybody else, with sales of scuba diving equipment down worldwide. It appears, though, that they have been slower at recovering than some other major brands like Scubapro and Mares, both of which appear to have capitalized on Aqualung’s weaknesses to grow market shares.
Yet, it is not a drop in sales that brought Aqualung to the brink of bankruptcy.
From its beginnings in the 1940s to 2016, Aqualung was part of the French conglomerate Air Liquide. Then, at the end of December 2016, Air Liquide sold Aqualung to Montagu Private Equity for an undisclosed amount. Air Liquide needed cash to finance its acquisition of Airgas in the USA.
Montagu is a European mid-market private equity firm based in London, England, with offices around Europe, including Paris, from where Montagu manages Aqualung through a corporation named Alizé. In fact, “Alizé Capital” is the official President & General Manager of Aqualung Corporate, which controls Aqualung International.
How Do Private Equity Firms Operate?
Not all private equity firms are the same, but generally speaking, here is the way they make money.
They buy a company where they think "fat" can be trimmed and assets can be converted to cash. So, first, they fire as many people as possible and cut costs (trim the fat, they say) and, if possible, increase prices (maximize value, they say). That way, the profit line is immediately improved. Since investors buy and sell companies as a multiplier of the profit line, the company is suddenly worth much more.
Meanwhile, they milk all the cash they can out of the company. And then, the goal is usually to resell it within 5 years for twice the purchase price.
On top of that, they do not pay the initial purchase price to start with. Instead, they use leveraged finance, known as LevFin.
How Does Leveraged Finance Work?
LevFin involves using an above-normal amount of debt, instead of cash or equity, to cover the purchase price of an asset, in this case, Aqualung. It means their actual investment is low, and if they can resell it for more, the return on investment is automatically huge.
Imagine you buy something worth $100 but only put $5 down. The other $95 is financed. Then you resell it for $200. You pay the debt and are left with $100 of profits on a $5 investment. And on top of that, you drained $10 out of that investment while owning it. It is no surprise that private investments have become the preferred assets of the wealthy (source: Wall Street Journal).
The Aqualung Journey Under Montagu’s Ownership
The initial purchase of Aqualung by Montagu was done with extreme leveraged financing, with about 121 million euros in loans provided by Barings and three banks: HSBC, Bank of Ireland, and ING.
All was fine with firing people, cutting costs, selling assets, and draining cash out of Aqualung until the COVID-19 pandemic hit.
Companies with a low level of debt, like Scubapro and Mares, could weather the storm. In fact, Johnson Outdoors, the parent company of Scubapro, has a debt-free balance sheet!
But Aqualung had a noose around its neck.
A mere few months into the pandemic, in July 2020, Aqualung received an emergency loan of 17.5 million Euros guaranteed by the French government, while all covenants related to its debt were waived until September 2022.
When providing a business loan, a lender usually asks a borrower to respect certain conditions that go beyond simply paying back the money. These promises made to the lender are called covenants. If you own a dive shop and have a loan or a line of credit, you probably have covenants.
But Aqualung sales were down, and so were the profits. The first year of the pandemic (2020) was a rough year for everybody. It was worse for Aqualung because it did not have any buffer in its financial situation.
Montagu was due to resell Aqualung in 2021 or 2022, about five years after the acquisition. But with bad financial results, their leveraged formula did not work very well anymore. And there wasn’t a lineup of potential acquirers either!
And then, here comes considerable increases in interest rates.
When you have an above-normal amount of debt and the interest rates go up, you end up with above-normal interest payments, further damaging the profit line.
After a judge ordered Aqualung in June 2022 to find a remedy to its operational and financial difficulties, Montagu was forced to put 15 million Euros into Aqualung while another lender provided an additional 18 million Euros.
And that is where Aqualung is currently sitting with something like 150 million euros in debt. We do not know where the EBITDA sits, but with all the additional loans received after December 2021, it may have gotten even worse than 13.6.
Meanwhile, they do not have much more room to cut costs any further as they have already drastically reduced the payroll and everything else.
And most assets that could be sold have already been traded so that Montagu could drain cash out of the company.
For instance, they sold their building in Vista on a street dedicated to Cousteau for an estimated US$ 20 million and rented office spaces in Carlsbad, California.
And last year, Aqualung sold its “Service Industry Marine” division.
Normally, in tough times, you may have to sell assets to get liquidities. However, in this case, they sold assets, but the cash flew out.
For instance, from the end of 2019 to the end of 2020, Aqualung’s debt increased by 13 million euros while invested capital shrank by 9.9 million euros. In other words, Aqualung kept taking on more debt while its shareholders took cash out.
You get the picture! Assets that could be sold were sold. Costs were cut to the bone. So now what?
Challenges for Aqualung’s Management Team
Some long-time Aqualung dealers have indicated to me that they were no longer “married’ to the brand, considering the reduction in service they noticed over the last few years.
“I don’t know if there is one person left in that building that knows scuba diving!” one dive shop owner told me.
“I don’t even know who to call nowadays. I don’t know anybody there anymore,” another dive center owner said.
In other words, on top of facing the same pandemic-related difficulties as everybody else in the dive industry, Aqualung also faces a reduction in its market shares due to self-sabotaging. And other brands jumped on the opportunity, like Scubapro and Mares.
Aqualung still employs about 800 people worldwide, and sales are estimated to be somewhat less than 200 million euros with manufacturing plants in France, the U.K., Italy, and Mexico.
In June 2022, at the same time as a judge gave four months to Aqualung to restructure its debt (which they are still working on), Bruno Cercley joined the company as Chairman of the Board. Cercley came in with extensive experience in… The ski industry. Rossignol, more precisely.
Then, also in June 2022, they let go of their worldwide CEO, Matthieu Bazil. In August 2022, they hired Scott Rittschof as president of North America. He brought with him experience in… Biking and skiing. Rossignol, more precisely!
And last December, Bruno Cercley became worldwide President and CEO.
What will come next for Aqualung?
According to GlobalCapital, one of the lenders, Barings, has put forward a proposition to take control of Aqualung. Barings is an investment management firm owned by Massachusetts Mutual Life Insurance Company and operating under MassMutual Financial Group.
Meanwhile, Montagu appointed Rothschild earlier this year to advise on the situation. Rothschild is an investment bank and financial services company controlled by the Rothschild family, in the banking business since the 1700s.
Otherwise, various sources have indicated that discussions between Montagu and other private equity firms have been ongoing for the last couple of years. But it may not be easy to sell a cow once it is left with only bones!
CONFIRMED (JUNE 2023): Barings will take over Aqualung to recuperate the money it loaned to Aqualung.
Anybody Else?
Aqualung is not the only dive industry firm that went through the private equity meat grinder. PADI has, too. It is no surprise. Private equity firms were interested in the largest dive gear manufacturer and the largest dive training agency.
Increases in interest rates are expected to create waves in the private equity and leveraged finance world this year. Aqualung may just be the first of many.
Stay tuned for more information on both fronts.
Scubapro Outperformed The Industry
While most industries have developed ways to share market data among stakeholders, the diving world is largely secretive and, one could say, paranoid! We are currently running a “State of The Industry” survey to help on that front. Please participate if you haven’t yet.
However, there is one dive gear manufacturer for which financial numbers are readily available since it is a division of a publicly traded company: Scubapro, in the Johnson Outdoors family of brands.
Scubapro had a stellar year with a growth of 3.4% compared to the pre-pandemic year of 2019 and 13.7% over 2021. Congratulations!
Scubapro’s fiscal year-end is on September 30, and therefore, Scubapro’s 2022 reported revenues cover the period from October 1st, 2021, to September 30, 2022.
Scubapro continued to do well in the last three months of 2022, with an increase of 16% in sales of scuba diving equipment over the prior year.
(Update) Bruno Cercley, CEO of Aqualung, Provides More Information to Scubanomics
Following our recent report on Aqualung’s Financials hardships, its CEO, Bruno Cercley, shared his game plan with Scubanomics. Read about it here.
Also from Darcy Kieran:
- Handbook: Your Career and/or Life as a Scuba Diving Instructor: How to Make a Good Living Out of Your Passion for Scuba Diving.
- Logbook: Advanced Scuba Diving Logbook with Checklists for certified scuba divers, divemasters & dive instructors.
- Handbook: Advanced Guide to SPF Scuba Diving for Scuba Divers, Divemasters & Dive Instructors: Develop Better Scuba Diving Skills, Dive Safer, Save Money & Have More Fun!
- Handbook: The Ultimate Beginner’s Guide To Scuba Diving: How to Increase Safety, Save Money & Have More Fun!
- Logbook: STARTER Scuba Diving Logbook with Checklists while getting your open water diver certification!
- Reference book: Scuba Diving Industry Market Reports, Data & Statistics.
Side note: During your surface intervals, have a look at my novels with a scuba diving twist, starting with “Mystery of The Blue Dragon” and “Shadows on Ocean Drive.”
You could help the dive industry by taking part in ongoing dive industry surveys. You will also find results from our past scuba diving market studies here.
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