Secure America Acquisition Corporation Identifies Positives and Negatives of Acquisition of Ultimate Escapes

By: Destination Club News
Date: September 7, 2009

Last week, Ultimate Escapes and Secure America Acquisition Corporation (SAAC) signed a definitive agreement to enter into a landmark business combination. Secure America would make a minimum $20 million contribution to Ultimate Escapes in exchange for over 4,500,000 units of Ultimate Escapes, based on a $186 million valuation of the destination club.

Upon closure of the transaction, Ultimate Escapes members will have the ability to exchange each of their approximate seven million units of Ultimate Escapes for one share of SAAC common stock, currently valued at $7.94 per share.

“We are very excited about the opportunities for growth that lie ahead and look forward to closing our transaction with Secure America," said Jim Tousignant, Ultimate Escapes President and CEO through the press announcement. "The substantial new equity capital from this transaction, combined with our large and affluent membership base, seasoned management team, proven business strategy, strong operational experience and advanced web-based “smart home” technology platform will enable us to execute our growth strategy and expand our operations, both organically and through additional accretive transactions."

During Secure America Acquisition Corporation's due diligence phase, the Board of Directors evaluated the positives and negatives of the acquisition and commented on why they believe the positives outweigh the negatives.

Below, please find the actual findings from Secure America Acquisition Corporation evaluation. None of the below have been ordered in any level of importance.

Positives

Ultimate Escapes Potential for Future Growth
SAAC’s board of directors believes that Ultimate Escapes has the appropriate infrastructure in place and is competitively positioned in the luxury destination club industry to achieve significant growth. The board’s belief in Ultimate Escapes’ growth potential is based on its established business operations, its year after year revenue and membership growth, its stable revenue base, positive future prospects and that it had what the board believed to be the potential to experience growth in EBITDA and earnings per share in the future. Ultimate Escapes has grown both organically and through acquisitions from no members and one property in 2004 to having more than 1,200 members and over 130 luxury residences as of June 30, 2009. SAAC’s board considered Ultimate Escapes’ strong acquisition track record and the belief of Ultimate Escapes’ management that pursuing selective acquisitions at attractive valuations will help expand Ultimate Escapes’ geographic coverage and enhance its market competitiveness. SAAC’s board also considered that the Ultimate Escapes members were accepting all stock consideration in the Acquisition, except for the $3 million in cash being paid to satisfy certain tax liabilities of Ultimate Resort, thereby leaving the combined company with sufficient working capital to fund its anticipated requirements for working capital and general corporate purposes, including business acquisitions. SAAC’s board of directors believes that the business combination with SAAC and public listing will provide Ultimate Escapes with access to capital to grow its assets.

Experience of Ultimate Escapes' Management
An important criterion to SAAC’s board of directors in identifying an acquisition target was that the target business has a seasoned management team. SAAC’s board of directors believes that the management of Ultimate Escapes has strong expertise in the markets in which it operates, including public company experience gained from working at Multex.com Inc., now known as Reuters Research Inc., a subsidiary of Thomson Reuters Group (NYSE: TRI).

Ultimate Escapes’ Strong Asset Base and Recurring Revenue
SAAC’s board of directors reviewed the asset base of Ultimate Escapes and relied on recent appraisals obtained by Ultimate Escapes’ lender of its real estate properties in connection with Ultimate Escapes’ pending acquisition of Private Escapes. Based on such appraisals, Ultimate Escapes’ real estate properties were valued at approximately $167 million. SAAC’s board considered the strong asset base as an important factor in favor of the Acquisition. In addition, SAAC’s board considered Ultimate Escapes’ long-term recurring revenue base as another important factor in favor of the Acquisition. Ultimate Escapes derives its revenue from long-term membership agreements with a minimum term of eighteen months. SAAC’s board of directors believes that Ultimate Escapes’ stable revenue stream will generate predictable financial performance.

Potential for Warrants to be an Additional Source of Capital
In addition, SAAC’s board of directors considered the fact that the public warrants that will be outstanding after the completion of the Acquisition could provide an additional source of financing for Ultimate Escapes if such warrants are exercised.

Negatives

Ultimate Escapes’ History of Losses
SAAC’s board of directors considered Ultimate Escapes’ history of losses. SAAC’s board determined, however, that the growth prospects of Ultimate Escapes outweighed concerns based on historical losses. In this regard, it was noted that losses were incurred during the development and rollout of Ultimate Escapes’ business. SAAC’s board noted Ultimate Escapes’ increasing net sales and decreasing net losses and the overall growth opportunities presented by Ultimate Escapes’ business strategy and its position in its target markets. Importantly, the board noted that Ultimate Escapes has generated positive EBITDA in the six months ended June 30, 2009.

Adverse General Economic Conditions
In its evaluation of Ultimate Escapes, SAAC’s board of directors considered the current adverse economic conditions and the impact such conditions could have on Ultimate Escapes’ business. It was the board’s belief that the trends evidenced that Ultimate Escapes’ strategy since its inception demonstrated potential resistance or reduced exposure to recessionary economic forces and that Ultimate Escapes’ markets, investment strategy and growth strategy outweighed concerns about general economic conditions.

Lack of Fairness Opinion
In analyzing the transaction with Ultimate Escapes, the SAAC board conducted significant due diligence on Ultimate Escapes’ proposed business model and investment strategy. The SAAC board of directors believes that, because of the financial skills and background of its directors and its internal ability to value the business against public comparables and other market index measures, it was qualified to conclude that the Acquisition was fair from a financial perspective to its stockholders. SAAC’s board also believes that the valuation of the proposed Acquisition would be tested by the market and factors that SAAC’s public stockholders deem relevant, and that 30% of the public stockholders could effectively veto the Acquisition if they did not deem such valuation to be fair. As a result, SAAC’s board of directors did not obtain a fairness opinion to assist it in its determination, although it is possible that SAAC’s board may be incorrect in its assessment of the Acquisition.

It isn't surprising that a "business combination" of this magnitude has some extensive legwork conducted in the background, and the SAAC Board of Directors has accurately identified the primary pros and cons of the acquisition. While many in the destination club sector have been gun-shy during 2009 due to the collapse of industry power players such as Solstice Collection, High Country Club, and LUSSO Collection, many believed that the destination club sector would flourish to include tens of thousands of members around the world. While unlikely to happen anytime soon as many potential members continue to keep a close eye on their checkbook, the benefits of destination club membership over second home ownership remain demonstrable. Through this announcement, last month's announcement to reactivate suspended members, and a pending closure with Private Escapes, Ultimate Escapes is hoping to position themselves favorably for when those potential members come off the sidelines.

If you would like to view the statement in its entirety, please click here. Destination Club News will follow up with an overview of the highlights of the 200 plus page document in the near future, so please check back soon.