Apollo Funds Engaged to Buy Diamond Resorts
- Jul 06, 2016
New York—Four months after establishing a committee to explore strategic alternatives to maximize shareholder value, Diamond Resorts International Inc. has found an alternative, and it’s a good one. The timeshare resort company has entered into an agreement to be acquired by affiliates of certain funds managed by Apollo Global Management LLC for $2.2 billion.
“David Palmer, CEO of Diamond Resorts, said in a prepared statement, “We have built a solid business focused on operational excellence, hospitality, and customer satisfaction, the result of which has been stellar financial results and strong cash generation. This transaction is an excellent outcome for our shareholders.”
Formed in 2007, Diamond Resorts is a noted player in the hospitality and vacation ownership industry, and it has the global resort network to prove it. The company’s 420-property, 13,000-unit portfolio of vacation destinations spans 35 countries, including the U.S., Canada and Mexico, as well as countries in Central America, South America, Europe, Asia, Australasia and Africa. The collection includes assets obtained as the result of the company’s $84.6 million cash acquisition of Intrawest Resort Club Group, which closed in January of this year.
The price tag on the proposal is nothing to sneeze at, but some analysts see it as justifiable. “Internal financial metrics that Apollo uses supported the $2.2 billion price point, and they will likely improve on Diamond’s financing and cash flow,” Stephen Biggar, a director with investment and economic research provider Argus Research, told Commercial Property Executive. In addition to the price being right, the companies are a good match. “Apollo is a contrarian investor in private equity, credit and real estate. Diamond Resorts fits well within its expertise of real-estate and related hospitality franchises,” he added.
The all-cash tender offer of $30.25 per share marks a premium of roughly 26 percent over Diamond Resorts’ closing share price on June 28, and more than twice that percentage over the closing share price the day the company announced the formation of a strategic alternatives committee in February.
“It is late in the economic cycle and locking-in a 58 percent gain since February 24 is a good move at this time,” C. Patrick Scholes, a managing director with corporate and investment bank SunTrust Robinson Humphrey Inc., told CPE.
Barclays, Royal Bank of Canada, and Jefferies are furnishing financing for the transaction, and PSP Investments Credit USA LLC is also coming through with debt financing commitments.
Diamond Resorts’ board of directors has given the proposed merger the thumbs-up and is urging shareholders to support the transaction. Among those who need to sign off on the deal are FrontFour Capital Group LLC and ADW Capital Partners LP. The two significant shareholders called on Diamond Resorts CEO to explore viable alternatives, including a potential sale, back in October 2015, writing in a letter that “despite commendable execution by the management team, the company’s shares trade at their lowest valuation since being public.”
In addition to shareholders’ approval of the buyout, the next steps toward completing the transaction include the customary closing conditions, but that’s not all. There’s a minimum tender condition dictating that more than 50 percent of Diamond Resorts’ commons shares be tendered.
If all goes as planned, Apollo’s acquisition of Diamond Resorts will close within the next few months, after which the vacation ownership company will be taken private.