In a move that is sure to change the face of the paddlesports industry, Confluence Holdings has acquired one of their largest competitors, WaterMark Paddlesports. Rumors about the pending deal had been floating around the industry for months and virtually all reports agreed Confluence was going to become the owner of Watermark’s paddlesports brands. The announcement made last Thursday confirmed that the rumors were true and according to Confluence, the company now holds roughly a 45% share in the kayak market with only one other major competitor in Johnson Outdoors.

Confluence also announced that Richard Feehan, former general manager of Old Town Canoe and Kayak has been appointed CEO of Confluence. Feehan was involved in a lengthy legal battle which started in February of 2004 when Johnson Outdoors was granted a temporary restraining order preventing Feehan from accepting this same CEO position. Feehan told BOSS that those issues have been dealt with and are behind him.

The deal does not include WaterMark’s Land Sports division, comprised almost entirely of Yakima, and after a short transition period, that business will move forward under the name Yakima Products Inc.

Jim Clark, former CEO of WaterMark, will become the CEO of the new company, with Amy Buckalter as SVP of global sales and marketing, Steve Rodden as VP of product development, Chris Bogue as director of sales for the western region, and Doug Ragan as director of sales for the eastern region. Yakima also recently hired two other senior executives in finance and human resources. Mike Steck will remain with Yakima as the company’s marketing manager. The Yakima business made up roughly 55% of the former WaterMark company.

Confluence will be adding roughly 200 people from WaterMark’s Easley Facility to their payroll, with “the Lions share” of the employees joining the company. A total of 35 WaterMark employees have made the move to Beaverton to continue with Yakima.

Confluence and the WaterMark paddlesports division will continue to operate as separate business units for the remainder of the 2005 selling season.

The two companies have signed a service agreement under which WaterMark will continue to handle all customer service, IT, and back-office duties for the WaterMark paddlesports division from the customer service center in Arcata, Calif. During this period, Confluence will build a customer service and credit department for the division in the Easley facility. The service agreement lasts through the month of August.

“The two divisions are very integrated,” Jim Clark told BOSS. “The focus for both companies as we put these brands together is on the customer. We want the integration to be as seamless as possible, but it is going to be a process that will take 100 days to complete.”

Feehan told BOSS that the key issues he and his team will be focusing on through the remainder of the selling season are keeping the transition as smooth as possible and maintaining business as usual in order to take care of both Confluence’s and WaterMark’s customers.

As far as future consolidation between the companies is concerned, Feehan said it is still too early to tell where they will be able to combine operations or achieve cost savings. Going forward, he will be looking at best practices and operating strengths to make these decisions. Currently, sales are healthy enough at both companies so that the capacity at both production facilities is needed. Feehan also said that there will be some cost savings with the added purchasing power of the combined company.

Feehan pointed to international opportunities now that this consolidation has taken place. While he gave no specifics concerning the strengths or weaknesses between the two companies, he did say that this “allows us to do things globally that we could never do before.”

Confluence and WaterMark will be owned by American Capital Strategies, a publicly traded equity company that provides mezzanine financing and capital for MBO’s and restructuring. American Capital funded the initial Fenway Partners acquisition of Riddell Sports, was involved in the recent Riddell-Bell integration and still holds a small stake in the company (see BOSS_0440). Additionally, it provided $30 million in funding for Rocky Shoes & Boots’ recent acquisition of EJ Footwear (See BOSS_0519); and in 2003 it invested $38 million in Camelbak, which is now owned by Bear Stearns and Giuliani Partners. American Capital has its fingers in nearly every market, from the medical industry to heavy duty trucking. In many industries American Capital has bought two or more companies, consolidated them together into one corporation, and then sold off its stake through an IPO.

Jim Clark confirmed that WaterMark and Confluence have been in discussions for several months, and neither party would comment on who initiated the acquisition. “We’ve been in talks with American Capital and Confluence for quite some time now, going back and forth. Eventually they made us a cash offer and it was accepted by our board,” said Clark.

With nearly half of the volume disappearing over the course of the next 100 days and a sizeable lump-sum of cash in the bank, the future Yakima Products will have a solid infrastructure in place that can support growth as well as the capital to fund it. This will likely make the rack industry much more competitive over the course of the next few years.

The same will be true with the boat industry. With two large multi-brand corporations now holding the majority of the cards, the playing field has become simplified. Much of Confluence’s energy over the next few months is likely to be spent on pulling one business apart and integrating it with its existing operations, while Johnson Outdoors is still re-structuring its watercraft division. With these two companies struggling with growing pains, it could open the doors a bit wider for some smaller start-ups to break into the industry.