DB Capital Partners acquired Center Parcs, a division of UK brewery and pub operator, Scottish & Newcastle, in March 2001 for approximately GBP700 million. Scottish & Newcastle had contemplated selling Center Parcs in early 1998, when it first considered refocusing its business on core pub and brewing operations. Scottish & Newcastle withdrew the business from the market as the European business embarked on a repositioning process.
In the acquisition of Center Parcs, DB Capital Partners saw the opportunity to bring together assets and skills from three leading businesses based in different countries to create Europe’s market leader in short-break holidays – one of the fastest growing segments of the leisure industry. The three businesses were Center Parcs, based in the UK and continental Europe, Pierre & Vacances in France, as well as its Dutch subsidiary, Gran Dorado.
When Scottish & Newcastle withdrew Center Parcs from the market, DB Capital maintained its interest. Work already performed had showed Center Parcs to be an excellent business and that it was a non-core asset for Scottish & Newcastle in the medium term.
Scottish & Newcastle had been investing significantly in Center Parcs in order to refurbish the villages and boost profitability. As the benefits of the repositioning process began to be apparent, Scottish & Newcastle began a formal sale process in March 2000.
DB Capital then formed a partnership with Pierre & Vacances, a leading European holiday village operator listed on the French market, which allowed it to put forward the most attractive bid to Scottish & Newcastle. This involved a complicated structuring exercise. Firstly, the exercise included a 50:50 joint venture with Pierre & Vacances for the European business, which included the injection of Gran Dorado, a Pierre & Vacances subsidiary and another player in the short-break holiday market in Europe, thus generating significant synergy opportunities, most notably in purchasing and marketing. Secondly, DB Capital acquired the UK business outright for its own account. The UK business was a high quality, stable growth business presenting an opportunity to achieve high equity returns through leverage and extension of the brand. And finally, in order to optimise leverage levels, separate financing structures were created for the UK and European businesses.
This meant that in the UK, conventional acquisition financing was provided by Merrill Lynch and Deutsche Bank, in Europe, a more asset based funding approach was adopted by a syndicate led by Credit Lyonnais and Natexis, and mezzanine facilities were provided in the UK by Merrill Lynch and in Europe by IFE Conseil and Indigo Capital. The strong and stable cash flows, coupled with a significant and well-invested asset base made Center Parcs an ideal candidate for leverage.
Eventually, after a marathon sale process lasting almost 12 months, the DB Capital consortium successfully completed its acquisition of Center Parcs out of Scottish & Newcastle in March 2001.
Excellent franchise Center Parcs is the clear European market leader in all-weather, multi-activity short-break village holidays. Center Parcs has 13 “villages” or “parcs” located in the UK, Netherlands, Belgium, France and Germany. It currently operates a total of 45,242 beds located in 8,723 self-catering villas and apartments and 304 hotel rooms. It also operates 75 restaurants and other food-led catering outlets, 53 cafe bars and 80 retail outlets, including convenience and gift shops. The company is famous for its all weather domes, which create the focal point of each village. In addition, Center Parcs operates conference and other business-to-business facilities at eight villages.
The company enjoys unrivalled levels of brand awareness, market penetration and scale advantage. It has a unique product offering and throughout its 30 year history has successfully maintained a premium quality image.
Center Parcs achieves an average occupancy level of over 89 per cent in the UK and 90 per cent in Europe. These rates of occupancy should continue to remain consistently high and stable due to the attractiveness of the product offering and the difficulties and long development time-scales in developing new sites.
Favourable market fundamentals Leisure spending across Europe is exhibiting consistent real growth, with spending on holidays ahead of the leisure sector generally. The short-break holiday market, where stays are for four nights or less, is in turn growing faster than the overall holiday market and at between two to five per cent more per annum than most leisure markets.
In addition, the short-break end of the holiday market tends to be fairly resistant to economic slowdown as people are more likely to sacrifice extended holidays before they curtail their short-term breaks. Center Parcs is almost exclusively focused on short breaks, which are four nights or less and are within a maximum of three hours drive time from the customer’s home, and therefore is ideally positioned to benefit from trends towards activity and theme based holidays.
Short break holiday companies are highly cash generative with advance bookings and payments providing excellent cash flow characteristics and a high visibility of earnings, which enables over heads to be effectively managed and flexed to match demand.
Pierre & Vacances: a value-added partnership Notwithstanding the cash generative characteristics of the business, DB Capital believed that additional industry expertise was required to realise full value potential from the transaction.
It was evident that the European business had lower occupancy levels and lower profitability than the UK. This had been partially corrected by the strong existing management team, which embarked on a large capex programme in 1998 to upgrade and more clearly segment facilities to meet the requirements of increasingly sophisticated consumers. However, there remained a clear opportunity to invest further capital to drive additional operating and financial improvements.
While Center Parcs Europe was the leading provider of short-break holidays in Northern Europe, this market was significantly more competitive than in the UK, with four
to five other scale players. This presented opportunities for consolidation in the market and Center Parcs presented a significant opportunity of driving this process.
These factors, coupled with the opportunity of gaining access to an experienced management team with different perspectives, drove the requirement to seek a joint venture with Pierre & Vacances.
Pierre & Vacances, through Gran Dorado, brought scale to Center Parcs Europe, which increased the combined European operations’ competitiveness in a fragmented market.
Pierre & Vacances’ in-depth understanding and extensive experience of the European leisure industry was of significant value, particularly given its enviable track record of successfully integrating three acquisitions since 1996. The Gran Dorado management team, with significant operational experience and proven ability to achieve significant synergies, supplemented the Center Parcs management and significantly reduced execution risk for DB Capital.
Given its solid cash flows, significant asset backing and premium-rated brand, Center
Parcs provides DB Capital with a sound platform with which to participate in the likely consolidation of the still fragmented European leisure industry.