KSL Aims For The Green With ClubCorp Buy

Target: ClubCorp Inc.

Purchase Price: Undisclosed

Sponsor: KSL Capital Partners

Sellers: The Cypress Group, Shareholders

Financial Advisors: Sponsor: Citigroup; Sellers: Goldman Sachs & Co.

Legal Counsel: Sponsor: Simpson Thacher & Bartlett LLP; Seller: Haynes and Boone LLP

A successful career in private equity can lead to a life of leisure. But to general partners still sitting on their nest eggs, leisure is more than just something to look forward to after retirement; it’s an investment opportunity.

A newer entrant to the sector is Denver Colo.-based KSL Capital Partners, a firm that was founded in 2004 and that just last month announced the closing of a $1 billion fund devoted solely to the travel and leisure markets. Earlier this month, KSL agreed to its second investment from the fund, ClubCorp Inc., an owner and operator of nearly 170 private clubs and three golf resorts in 27 states and the District of Columbia. Terms were not disclosed.

“It’s an extremely well-regarded brand in the industry and it’s got a critical mass of both clubs and members,” KSL Managing Director Eric Resnick tells Buyouts.

The purchase agreement excludes ClubCorp’s Pinehurst Resort, the North Carolina property that played host to the 2005 U.S. Open. That property will be acquired in a separate deal by the family of ClubCorp’s late founder, Robert Dedman. The two deals have a combined value of about $1.8 billion and are expected to close by the end of this year.

According to a 10-K filed last in March 2006, ClubCorp generated net income of $70.8 million and had about $671 million in long-term debt for its fiscal year 2005, which ended last Dec. 27. Gross revenues for fiscal 2005 reached $1.04 billion.

Resnick said that about 60% of ClubCorp’s revenue is generated from its fleet of private golf-oriented clubhhouses, which are located at various public golf courses; approximately 20% is generated from members-only business clubs, which are based primarily in downtown sections of cities; and the remainder flows in from its destination resorts, which include The Homestead, based in Hot Springs, Va. and Austin, Texas’s Barton Creek Resort & Spa. In all, ClubCorp has about 190,000 members.

“Businesses in this niche are benefiting from current and long-term trends, key among which is the aging and growing baby-boomer population,” Resnick says. “Today there are more baby boomers with more time and more money than ever before and they’re choosing to spend it with their friends and family by taking care of their health and treating themselves to vacations.”

The macroeconomic picture for the private club sector looks rosy, too. As many are bracing for economic hiccups in the coming years, Resnick holds that the private club market is a time-tested segment that’s able to stay strong regardless of where we are in the economic cycle.

“Customers of private clubs tend not to be as sensitive to economic trends,” he says. “And even if there is a downturn; that’ll usually entice people to stay closer to home, in which case a local private club could still be a part of its members’ day-to-day lives. It’s a resilient business.”

To fuel growth, KSL and ClubCorp have committed $150 million to make targeted capital investments over the next two years, which will translate into improvements such as the addition of spas, high-speed internet access, full-sized fitness centers and activity pools in locations that are not already outfitted with such amenities, Resnick says, noting that add-on acquisitions are also a planned part of the growth strategy.

ClubCorp will be a portfolio company in the $1 billion KSL Capital Partners II, which closed oversubscribed earlier this year. Once completed, the buyout of ClubCorp will be Fund II’s second investment. The first was made in July, when KSL completed the $56 million acquisition of Rancho Las Palmas Resort & Spa from Strategic Hotels & Resorts Inc.

The acquisition of ClubCorp provides an exit for New York buyout firm The Cypress Group, which took a $300 million minority stake in the company in 1999. Calls to Cypress were not returned.

Long-term devotees of leisure investments include firms like Starwood Capital Group, The Blackstone Group and Colony Capital, which over the past year have invested in ski resorts, amusement parks and luxury hotels, respectively.—A.N.