By SuperyachtNews
05 Mar 2012

The candid superyacht owner

A candid conversation with self-made billionaire John Caudwell, in which he expands upon his model of spending his own money on a fleet of yachts with the intention of earning a return on his investment.…

Martin H. Redmayne (left) and John Caudwell at the Apoise owner's home in Staffordshire

There are so many anecdotes about yacht ownership, but there’s one that will stay with me forever, as it sums up the cynical negativity towards our market. “How do you make a million in yachting? Start with a billion!” The other derogatory acronym I despise is the one that is related to one specific owner: that of SPAM, Spending Paul Allen’s Money. In the case of a trip to Staffordshire in the UK, the heart of large yachting, I spent the afternoon in candid conversation with self-made billionaire John Caudwell, where he expanded upon his model of spending his own money on a fleet of yachts, with the intention of earning a return on his investment without losing any of it.

The two-and-a-half-hour drive from London to his Jacobean mansion in Staffordshire was spent with his yacht manager and charter broker, Stephen White of International Yacht Register. We spent our time discussing the man, his yachts and his business plan, and having done my homework on the rags to riches mobile phone billionaire, I knew I was in for an interesting afternoon. Here was a no-nonsense, take-no-prisoners businessman who has a reputation for chewing up journalists and spitting them out after an hour of conversation. Here was a man on a mission to invest in yachting and buy assets cheaply or wisely and sell them at the top of the market, but at the same time make the asset work hard and earn back the running costs.

Tracing back over his business history and lifespan, not only did he cleverly sell his Phones 4U business in late 2006 at the height of the private equity boom for over a billion pounds sterling, he equally enjoys talking about his childhood in the back streets of Stoke on Trent where he would make small yachts out of lollipop sticks that would float in dirty puddles in the terraced streets where he grew up, only a few miles from where he now lives. This is a stunning Jacobean mansion that he bought 17 years ago; at the time it was a Franciscan convent and in true Caudwell style he struck a deal that made sure everything was included – all the antiques, fixtures and fittings.

His anecdotal style reflected on the first night in the house, whereby he hadn’t secured insurance for the property in time for occupation and he slept the first night with a shotgun by the bed, in case word had got out that the nuns had flown their valuable nest, with locals knowing that security was not on their shopping list and no alarms were in place. This is typical of this dynamic and direct man; when there’s a deal to be done, he’s first in line. The man has a handful of loves, ranging from the sea and boats, to cycling and exercise, and his love of devoting his current time to charitable activities and, of course, business.

His first big yacht

Our conversation focused on his yachting experience and his passion for floating around the Mediterranean. Being a serial Sunseeker owner has been his favourite times afloat and with his partner, Clare, he has actively cruised on his 64-foot and 90-foot Sunseekers, enjoying being captain and chief stewardess respectively, with him firmly at the helm and in charge. It was his partner, however, who was intrigued by the bigger and more impressive craft as they bobbed around off Cannes and Monaco; and while he loved being the man at the helm, he too became interested in these white goliaths that so many of his business contacts owned. He watched closely and decided that it may be worth a try, but decided not to jump in with both feet like so many self-made billionaires might.

With his head for business and his prophecy that the world would collapse into recession—some four years before reality struck—he knew that his time for his deal would come.

For five or six years he scoured the market, being touted by all the major brokers, seeing and stepping on and off anything that was for sale of a decent size. With his head for business and his prophecy that the world would collapse into recession, some four years before reality struck, he knew that his time for his deal would come. After the market crash, he waited for the prices to drop and then started to seriously look for his ideal starter yacht, deciding not to charter, but to just buy and focus on the asset. Knowing exactly what he didn’t want – minimalist and stark, or heavy club style mahogany interiors – he went in search of a yacht that was comfortable and relaxing, eventually falling in love with MY Capri. He added into the conversation that the acquisition was not for hedonistic pleasure as it is for so many other buyers, but it was a business decision and he intended to make it work as such.

While he didn’t want to expand on the experience of buying MY Capri, he was drawn into a conversation about the bad taste it left in his mouth, with what he described as a dreadful situation and cited the role of middle men and the MYBA contract as part of the flaw in the process. He went on to clarify that in all his years of business, he has tried to avoid middle men or brokers as he feels they don’t add value to the deal. In the case of the broker he didn’t want to expand too much, but he was clear in his opinion of the MYBA contract issue, whereby he had gone to contract, paid his deposit, but even at that stage it seems that the seller did not need to deliver a list of excluded items for up to two weeks after the contract signing.

Suffice to say that over 400,000 euros worth of items that he thought were part of the yacht sale were removed as excluded items and offered back to Caudwell for sale. This left a very sour taste and if he could have walked away, he would have, but his lawyers advised that it might cost him more. He finally got to talk directly to the seller and by way of settlement and as a good will closing, suggested that each party gave a million to their favourite charity. This idea was ignored and the case is going to go to arbitration. As a result he not only feels aggrieved, but has a low opinion of the broking sector and has sworn never to sell one of his yachts using a MYBA contract.

John Caudwell

Buying Apoise

The buying of MY Apoise was a much chronicled and reported transaction, more so than any other deal for a decade. Not only was the final purchase price published across the market at 34 million euros, the sales process was a first for a yacht of this size, being that of an unreserved auction. The deal sent shock waves through the market, with brokers scoffing that if he had used a broker the yacht would have attracted a higher price, with builders worrying that this had shown a huge devaluation for a relatively new build from a pedigree yard, in what was already a very stagnant market.

...as a long-term trader, buying low and selling high, here was the deal of the decade: a 62-metre Lürssen at probably 40% off the market value.

When asked about the Apoise deal, Caudwell was again his usual candid self and told the tale word for word. Having realised that this was an innovation in yacht sales history, he was already intrigued, but sceptical that the yacht would sell at an inflated price, by people bidding up the deal. It could go either way, he thought, and having an eye for a deal, he felt compelled to pursue the opportunity, flying out to Grand Cayman with Stephen White at his side to check out the process. He was right in his thinking; others were cynical about the auction and failed to turn up or instruct their brokers to bid on their behalf, thinking that 50 million euro plus would be the final sales price and not wanting to spend that sort of money when the market was flooded with attractive deals.
It transpired that only five bidders attended the auction, four by phone and one in person, Mr John Caudwell; so rather than sit in the audience with the auction staff and the seller’s friends and family, he chose the final desk alongside the phone bidders. Quite a humorous picture, this mobile phone billionaire with no phone, alongside four people holding phones talking to his rival bidders. Caudwell explained that he entered the bidding process after spending two days with the seller and owner of the auction house, Dave Ritchie. This was part inspection and part social, whereby he got to know the seller and not only admired the man in his quest to prove the process, but also respected his honesty and integrity, which was juxtaposed to his previous acquisition of MY Capri.

The auction was new to the market and the auctioneer started the bidding, which after the first part of the process, stayed around US$30 million and wasn’t moving upwards of US$31 million. This is when Caudwell made his move and decided to play with the auctioneer, by walking away from his desk and opening a Coke can at the back of the quiet room, with a loud hiss. The room was bathed in silence, he explained, and he almost enjoyed watching the nervous energy pulse through the room and the sweat form on the auctioneer’s brow. He returned to his desk and played his cards well with his typical trading ability and rejoined the bidding knowing that he was about to buy MY Apoise. After a few minutes of bidding against one other rival, with the others dropping out early on, he secured the final bid at US$46 million or 34 million euros at the time of the deal.

Now, as a long-term trader, buying low and selling high, here was the deal of the decade: a 62-metre Lürssen at probably 40% off the market value. But Caudwell was quite humble when discussing the deal, as he went on to explain his regret that the auction hadn’t generated as much value for his new-found owner friend in Dave Ritchie. He added it was the first time when he felt sad that a deal had gone his way. Ritchie had built the yacht a few years ago so that he could circumnavigate the globe for two years as part of his retirement plan; luckily his wife enjoyed the trip so much that she allowed him to use the yacht for another two years and then he had to sell it.
Now while the auction model may not have paid the price Ritchie was hoping for, Caudwell in his pragmatic way added that it may have taken two years to sell in the normal brokerage market, that would have meant two more years of depreciation on price and two more years of running costs of approximately 5 million euros per year. Perhaps removing another 12 million off the investment and bringing it closer to the final deal done, but within a shorter period of time – approximately one afternoon. MY Apoise was now added to Caudwell’s fleet and he now had to decide what to do with her.

Design opinions

Having never spent a night on board MY Capri yet and only a short period of time on MY Apoise in order to work out what needed changing, it is clear that these yachts have not been bought for his pleasure and enjoyment. MY Capri had been sent to Dunya Yachts in Turkey for a cosmetic upgrade and paint job ready for the charter season and MY Apoise was going through an IYR inspection and management process in order to make her ready for charter. Caudwell had fallen in love with MY Capri for her comfort factor and colour scheme; and whereas MY Apoise may not have been to his taste, he planned the future look and feel for the yacht, but only after it had earned him a crust, so it was put straight into action after crew and charter operations had been upgraded.
Our conversation moved towards design and his opinions thereof, whereby he was scathing at the way in which so much money is wasted on what he calls bad design and terrible use of space. In the past five years he has inspected what he described as hundreds of ghastly yachts, the majority with bad use of living space and poor ergonomics and yet designers have all been paid handsomely to create these yachts. “It amazes me!” he exploded, “they just can’t know how we want to live on these yachts, all these vast entertaining spaces and not just one, but three different ones, yet you can only really entertain a handful of people for a party?”

Caudwell doesn’t mind paying for excellence... in his business empire, he was one of the best payers in the business for the best people that delivered for him

He went on with his commentary on his design ideas: “Why doesn’t a 65-metre have more than six cabins, so single guests can have their own cabin? They should all have a good gym, spa and a dedicated cinema, rather than a compromise in a saloon that doesn’t really deliver the quality experience we expect... There are too many wasted spaces and too many compromises and the re-sale market and historic conformity seem to dictate the format and layout of every yacht. They all seem to follow the previous project. Where’s the innovation?”, he added with a wry smile. “If I make my yachting business work with the current fleet, I will definitely design my ideal yacht, at around 85 metres, and while I learn exactly what I want from the current yachts, it will be a yacht that I will use with all of the perfect spaces for a family or good group of friends to enjoy and have fun on board. If I want to entertain 200-300 people for a party, then even my new bigger project wouldn’t be big enough, so I won’t need lots of entertaining space. Design is about personal use of space and if you know how you plan to use it, the creative process should be pretty straightforward.”
Here’s a man who listens to no one and does things his way; in fact his partner Clare suggested that the 85-metre should be named MY Way. Let’s hope the business model works, so that he continues to invest in our industry.

Running a yacht as a business

The interview focused on how he intends to run his yachts and his investment plan and this spawned the question about what he thinks about our industry as a whole. In a no-holds-barred response, he calmly replied, “I’ve never seen anything so amateurish in my life!” He qualified this by saying that he can see why it’s got to where it has and it is all driven by short term-ism and greed on all sides, but added that there is no reason for owners to accept it.

The conversation revolved around the astronomical cost of everything when it comes to yachts and how expensive things seem to be just because you have a very big floating asset. He also explained his views of the crew and their salaries, suggesting that the cost of a stewardess at 2,000 euros per month doesn’t make sense, when you consider what people are paid in good hotels, restaurants and on cruise ships. The 2,000 euros doesn’t take into consideration that all living expenses are covered on board, coupled with even the smallest personal effects that the boat provides. “I recently interviewed a beautician who had been working on a cruise ship. Her income over a year averaged out at 300 euros per month, yes 300 euros, as she was on a commission and bonus scheme for the number of treatments she performed and the products she sold! She was more than capable of looking after my needs as a stewardess and for a lot less money; this is what we need to look at, finding new blood that isn’t expecting everything to be provided and at inflated market salaries. Things need to change!”

...he just wants to prove that yachts don’t have to be a black hole that money disappears into.

He believes that owners are held to ransom by the market and that the days of paying over the odds for everything should change as a result of the current economic situation. He suggested that this wasn’t a one- man crusade, but just him speaking out loud about what he believes in and that more owners should do it.

His business model for his yachts will be based on common sense, bringing in new blood and sensible management practices. Clients have thrown money at yachts to solve problems or some don’t care about wasting the money in order to enjoy their yachts and get away from their business. But his views are strong, he won’t be dictated to by the norm in the market, it doesn’t make any sense to him, “I don’t like wasting money!” he added vehemently, and looking at the way he has traded and built his empire, you can appreciate the model. The caveat to all of this is that Caudwell doesn’t mind paying for excellence, and added that in his business empire, he was one of the best payers in the business for the best people that delivered for him.

His business model for his expanding fleet is clear; he wants to spend what he has to, but not waste money. He wants to run the yachts highly efficiently and make sure they are always working, with an expectation of at least 20 weeks charter per annum, per yacht. While explaining that this won’t make him a real business profit in the way that the money he has invested – when put to real use – would earn, he just wants to prove that yachts don’t have to be a black hole that money disappears into.

The intention is to run the yachts as a business, with the crew and the yachts offering a perfect experience on charter, but with a charter rate that is below market rate, in order to aggressively win the weeks. He agreed to use the IYR business model as it offered him an innovation in the market that he thought made good sense. “If I’m going to charter 20 weeks, it doesn’t make business sense to pay the market rate of commissions for intermediaries to introduce clients to my yachts. 20% of 20 weeks is a lot of money that I don’t need to pay and this all helps prove my business model. I approve of the IYR approach, it makes sense to me and if their financial model works for me then I can see more opportunities for me and for them.”

In fact, Caudwell started to ask about other yachts in the market that could provide a similar good buy scenario for him. In a depressed market, there is always opportunity and while he explained that his model revolves around aggressive charter, he also pointed out that asset play is also fundamental and expects that the capital return on the investment he has made will pay back when the market returns in the next few years.

He closed our enlightening and candid exchange with a cautionary note, explaining that he expects the market to be depressed for some time and owners will need extra special attention to keep them interested. Times will be hard and in fact harder for the yards and the supply chain, but in the future there will be even more people making their fortunes and wanting the hedonistic life of yacht ownership.

In the next two to three years he is confident that the yacht market will come back and he expects to be ready for these good times, with a fleet of hard-working well-run yachts that do not cost him a fortune but actually breakeven or even make a small return. When it comes to him actually using the yachts, he will fit in and around the charter schedule, using them when they are free. In fact since owning the two yachts, he has never spent a night on board them for fun or pleasure yet.

And finally he added, “If I make this work and make the return I expect then I will consider yachting a fun investment and will keep doing it, ultimately buying my 85-metre dream build. But the day I stop enjoying big yachts because people try to rip me off, or it’s not working well, then I will drop it like a stone and go back to driving my big Sunseekers, which is where I have had most of my fun.”

Let’s hope he proves the market wrong and builds a successful charter and asset play business and makes it work financially. As he suggested, the depressed time at the moment is the right time to shake up an industry and while he claims he is not on a crusade, I think he will be crowned King John and will be joined by the knights of the IYR round table.

This article originally appeared in The Superyacht Report