What Happens Following The Ultimate Escapes Merger

By: Destination Club News
Date: June 29, 2009

As executives from Ultimate Resort and Private Escapes continue to work towards the completion of the merger of their two clubs, what will the official merger do for members and prospects of Ultimate Escapes?

First, let's catch up.

In September of 2007, Ultimate Resort and Private Escapes shocked the industry with the announcement "Ultimate Resort and Private Escapes Sign $200 Million Merger Agreement and Create Industry's Second Largest Destination Club."

Fresh off their acquisition of Tanner & Haley of approximately $100 million, Ultimate Resort had cemented themselves as the number two player in the space behind industry giant Exclusive Resorts. Private Escapes had taken a much more organic growth model, launching three clubs under the Private Escapes brand to grow to become the third largest club in the sector. The marriage of the two clubs would consist of about 1,200 members and make the collected clubs the industry leader in the $1 million and $2 million home value range.

"This merger will create the industry's top destination club organization, providing our approximately 1,200 existing club members with the industry's 'best of breed' club offering," Ultimate Resort Founder, President, and CEO Jim Tousignant said in the release announcement. "Ultimate Resort and Private Escapes are both market leaders that share core business values that are focused on an unwavering commitment to providing our members with exclusive access to the best club homes, most memorable vacation experiences and the top concierge and member services in the industry. Combining our individual strengths creates a much stronger family of destination clubs that offer our members the most club membership plans, the best flexibility, a vastly improved range of new club destinations and member vacation experiences, all while operating a prudent, sustainable business model."

According to the announcement release, the two clubs would "maintain current club operations in parallel during the 75-day due diligence period while the two companies work on integrating all phases of club operations, technology, member services and field operations." Planned to close in mid-November of 2007, Tousignant and Private Escapes' Founder Richard Keith would serve as Co-CEO's. Tousignant would continue as CEO after the merger as Keith took over the role of Chairman.

The November timeline quietly came and went and in May of 2008, the two clubs officially announced the new brand "Ultimate Escapes" to members. The majority of members were now able to make reservations at any of the collected properties as the two clubs continued to work towards the finalized agreement, just as the financial and credit markets started their historic meltdown.

Due to the chaotic market environment, in January of 2009, Ultimate Escapes elected to charge members a $16 million assessment, disclosing the fact that the official merger had yet to be finalized. In an interview with Bloomberg, Keith cited the credit markets, decreasing real estate values, and the overall chaos of the market as reasons for the delay.

After successfully reaching their $16 million mark, the club again began work on finalizing the merger agreement and has told The Veras Group "the technical completion of the merger is imminent and should occur with the next few weeks," over 650 days past the announcement in September of 2007.

But what will the pending finalized agreement mean to members and prospects? While we don't have a crystal ball, these are some of the changes that we suspect may happen in the near future. Please note, these are merely our thoughts and in no way represent the plans or intentions of our friends at Ultimate Escapes.

Decreased Staff

In 2008, the club shed almost $10 million through layoffs and executive pay decreases. While staffs have already been significantly cut, not only at Ultimate Escapes but at virtually every club in the industry, the finalized merger does allow the club to grow more lean.

Currently, the branches in Florida and Colorado both have sales, IT, member services, and finance teams in house. We expect some form of consolidation at several of these operational levels, with member services highest on the food chain and least likely to be significantly altered as the club focuses on member retention.

Suspended Members

According to Keith, again in the Bloomberg interview, roughly 80% of members elected to pay the assessment. The remaining club members who did not pay were placed on a suspended member list with their membership privileges removed. With the merger finalized, we suspect the club will make a full court press to regain these members.

As we approach the six month mark since the assessment, we know the club has worked towards finding a solution that is fair to both those who did pay the assessment, and those who did not. With a sizable membership base deeply invested in the club both financially and emotionally, we hope Ultimate Escapes reaches out to their educated base of members to help them find a solution that again unifies the club.

Liquidated Assets

While hardly the best environment to sell real estate assets, Ultimate Escapes has repeatedly mentioned the need to "right size" the portfolio to come more in line with membership numbers. Despite the less than ideal selling situation, liquidating assets brings much needed capital into the firm but also decreases costs.

The judicious selling of properties may not net the club the amount they would have gotten twelve months ago, but the removal of local host costs, HOA fees, insurance, property taxes, maintenance and other costs will alleviate another burden on the club's monthly overhead.

Annual Dues Increases

Not at all exclusive to Ultimate Escapes, but as sustainability becomes more and more of an issue, we expect virtually all clubs to apply a price hike on annual dues to cover their monthly burn.

When many of today's leading clubs launched, Exclusive Resorts and Tanner & Haley had already established a demonstrable lead in market share, requiring new clubs to compete heavily on lower fees. In the two cases of Ultimate Resort and Private Escapes, they branded themselves as "the most affordable luxury destination club on earth" and the "first and only affordable luxury travel destination club" at their respective launches.

With the 655 day "due diligence period" nearly over, we are interested to see how Ultimate Escapes will move forward. While the finalized merger won't drastically change the travel experience of members who have had access to the club's properties since May of last year, the finalized announcement will better position the club to move forward and concentrate exclusively on members and growth. Clubs have seen a slight increase in sales in recent months, and we have spoken to several new companies in the past weeks expressing their interest to enter the destination club sector, both positive signs for the sector.

To discuss other changes to Ultimate Escapes' members and prospects as a result of the finalized merger, please visit our friends at DestinationClubForums, a free forum focused on insightful discussions on every destination club happening.

Addendum: September 16, 2009

Since this article's published date, Ultimate Escapes has announced that they have reactivated their suspended members and completed the merger of their two clubs, in addition to the breaking news that they have signed an agreement with Secure America Acquisition Corporation to make the club a public company.

Congratulations to Ultimate Escapes on all of their exciting news.