$265M: Sale price gets attention in ski industry

Steamboat Pilot newspaper article by Tom Ross 12/20/06

Steamboat Springs — When American Skiing Co. announced Tuesday morning that it will sell the Steamboat Ski Area to Intrawest, it was the price tag that grabbed everyone’s attention.
$265 million.
That’s a 185 percent increase over the $92.5 million that an investment group led by Tim and Diane Mueller contracted to pay for the ski area just five years ago. American Skiing Co. pulled out of that deal on closing day; a repeat of that scenario seems unlikely this time.
“Creating value is what it has always been about,” American Skiing Co. CEO B.J. Fair said. “We were able to create tremendous value. But it’s also the absolute right thing to do for Steamboat. In addition to the price, (Intrawest) did a good job of articulating what the future of Steamboat can be.”
Intrawest’s announced purchase of the Steamboat Ski Area came just a couple of months after it was acquired by Fortress Investment Group. Fortress, based in New York, is a private equity firm and hedge fund that manages assets totaling $26 billion. Fortress bought Intrawest, which is involved in 10 ski resorts in North America, for $2.8 billion in October.
The Steamboat deal already has made an impression on industry insiders.
“Good for them,” former Intrawest executive David Hill said about what American Skiing Co. will get out of the deal.
Hill is the former senior vice president of resort development for Intrawest and the current president of Resort Ventures West. His company is undertaking the Wildhorse Meadows hotel and residential development in Steamboat.
Hill admitted to being a little surprised by the price.
“How is it that (Steamboat) could go from the price Tim and Diane Mueller contracted to pay for it to where it is today?” he asked.
Grand deal
The sale, expected to close by the end of March, would include the commercial spaces in the Steamboat Grand Resort Hotel, employee housing units at Walton Pond Apartments (owned with other partners), four parking structures and lots with development potential, and Steamboat Central Reservations. The Steamboat Grand has the potential for the addition of a south wing, which might add 70 new units, resort officials said. The deal also calls for Intrawest to assume $4 million in debt.
A major difference between the Triple Peaks and Intrawest deals for Steamboat Ski Area is that the former did not involve the Steamboat Grand. Fair said the Grand has matured into a solid revenue generator in the intervening five years.
Welcoming Intrawest
Six years after leaving Intra­west, Hill is leading the development company building the Wildhorse Meadows project in Steamboat.
Hill, whose development will be tied closely to Steamboat’s Gondola Square via a people-mover gondola, said he would welcome Intrawest’s arrival as a positive development.
“The credibility in Intrawest and Fortress — in the business sense — is extremely positive for us,” Hill said.
Hill confirmed Fair’s stance that the performance of management in both Steamboat and American Skiing Co. headquarters in Park City, Utah, increased the value of the ski area.
“B.J. (Fair) is right that their management team has done a lot to improve their business,” Hill said.
He’s also intrigued with the high value being placed on ski resorts today. “That’s where the market is. We’re seeing that the capital markets have had a heavy focus on the ski industry. Why is that? Is it that it’s in vogue?”
Hill said Intrawest’s sale in December 2005 of a majority share of Mammoth Mountain Ski Area in California for $365 million seems to have set a new benchmark for the acquisition of ski resorts.
Different era
Fair said it’s important to understand the different economic climate in which this sale is taking place. First, he said, the substantive part of the previous sale process in late 2001 took place in the post-Sept. 11 era, when capital markets tightened severely.
American Skiing Co. was in much more difficult financial straits at the time, Fair said, and it was widely known among prospective buyers that the company was in a situation of having to sell a major asset. Those factors combined to put downward pressure on the price in 2001-02.
Despite the fact that its quarterly earnings reports still suffer from the long-standing debt the company carries, American Skiing Co. has been able to steadily improve the financial performance of its resorts.
“The sale is confirmation of that,” Fair said. “Every year, we’ve hit what we said we were going to do.”
In July, he said American Skiing Co.’s board of directors was fully prepared to turn away from the sale process if it didn’t appear a Steamboat sale would realize its goals.
Lasting value
After their deal for Steamboat fell apart, the Muellers purchased Crested Butte Mountain Resort in March 2004. They studied the latest Steamboat sale offering during the fall but did not take their renewed interest to a serious level after the price range became evident.
Tim Mueller would not divulge the amount of the Crested Butte sale, but he said Tuesday that the price he paid for the resort near Gunnison 33 months ago wasn’t comparable to this week’s Steamboat sale. That’s even when you adjust for Crested Butte’s skier visits (about one-third of Steamboat’s in 2004).
“It certainly wasn’t the same magnitude,” Mueller said. “And we got a lot of developable real estate in our (Crested Butte) deal.”
Mueller said the valuation of ski areas has tended to be cyclical, but if the price Intrawest has agreed to pay for Steamboat proves out over time, it will be a positive development for other ski area owners.
“We’ll see if it has lasting value,” he said. “I’d certainly like to think it’s sustainable. If not, it adds a question mark.”
Hill said he expects Intrawest’s leadership to continue to build on its reputation for being able to introduce new management standards without trampling on local sensibilities.
“I feel positive they will continue that,” he said. “They have an ability to inject enthusiasm in the form of capital. That has been a consistent there no matter what ski area they acquire.”