Market Reaction to the Acquisition of Intrawest by Fortress Investment Group LLC

My previous post on the buyout of Intrawest Corporation, operator and managing developer of Winter Park Resort, by New York-based Fortress Investment Group LLC, concentrated on the details of the deal and the immediate reaction from Winter Park Resort personnel and locals.

However, it is also appropriate to find out what the financial analysts were saying. After all, this involves the sale of a publicly traded company. Not just that, this acquisition represents the biggest-ever buyout of a publicly traded resort operator, and the third largest private equity acquisition of a Canadian company. Because of this gap in informed opinion, I decided to do a little digging.

Independent Market Reaction
The sale is widely seen as part of a privatization trend in the North American real estate sector that is likely to continue as long as interest rates remain low. Investment industry sources say it is also being fuelled by a disconnect between how companies such as Intrawest are valued by financial analysts – particularly in Canada – and U.S. private equity firms.

Will Marks, an analyst with JMP Securities, suggests that the privatization of the ski industry doesn’t necessarily mean a reduction in investments,” Whether a company is public or private does not necessarily drive the capital spending at a resort.” However, he does expect Fortress to divest some Intrawest assets after the sale closes. “We would expect Fortress to dispose of certain assets to help finance the acquisition. Our view is that Fortress will consider selling some of the land holdings,” Marks said.

Chris Woronka, an equity analyst with Deutsche Bank Securities Inc. in New York, in part, mirrored this view,” They may expand certain parts of their business and dispose of others.”

Adding weight to this assessment came in the form of a comment from Joe Coco, a legal advisor to Fortress, who said, “Intrawest could be divided into several pieces.” Fortress is buying Intrawest because it sees value in various parts of a business that generated sales of $1.7-billion in fiscal 2005, Mr. Coco said., in their August 11, 2006 Stock of the Day Newsletter asked, “Does this flattering appraisal by Fortress Investment Group and the resulting flurry of trading activity prove Intrawest’s early retirement from Wall Street premature, or are they getting out while the going is good?” The international reach of the company may account for its high level of attraction from the private equity firm. Intrawest’s worldwide properties and, consequently, worldwide customer-base implies that there is a certain sense of longevity for the adventure travel firm. The high-end demographic may further buffer against potential losses at a time when, for most Americans anyway, luxury travel may be one of the first indulgences to be eliminated from the family budget as gas prices soar, the housing market fizzles, and consumer confidence deteriorates.”

Who is Fortress Investment Group?
Only by attempting to understand the modus operandi of Fortress Investment Group, and researching its prior business transactions, can one begin to formulate an opinion as to the potential impact on the Winter Park Resort and the Winter Park & Fraser Valley.

In some financial circles, Fortress is referred to as a “hedge fund” that specializes in buying “distressed debt.” Researching their website,, Fortress manages capital for a diverse group of investors, including leading pension funds, endowments and foundations, financial institutions, funds of funds and high net worth individuals. Investments are made primarily in cash-flowing businesses and asset portfolios in the United States and Western Europe. Fortress has grown to become a leading private equity firm by acquiring attractive businesses and building them in partnership with management.

Sectors in which the Fortress private equity funds have been active investors include financial services, residential and commercial real estate, senior living, transportation, energy and power, and media/telecommunications. There are links to some examples of Fortress’s private equity investments on their website which make for interesting reading – especially the real estate transactions involving public housing corporations in Germany, Government owned office properties in the UK, and senior independent and assisted living facilities in the US. The reference to “transportation” and “energy” refers to the acquisition in November 2004 of Stelmar Shipping Ltd, an international provider of petroleum products and crude oil transportation services, headquartered in Athens, Greece. “Media” partly relates to the acquisition of Liberty Publishing Group, Inc in June 2005, which owns and operates 274 publications located in 15 states.

And if you follow the music industry, you may know that on April 13, 2006, Michael Jackson, struggling to stave off bankruptcy, agreed to a debt refinancing that may lead him to forfeit a share of a music catalog that includes more than 200 Beatles songs. Under the agreement, Michael Jackson gave Sony Corporation an option to buy half of his 50% stake in Sony/ATV Music Publishing LLC, allowing him to refinance about $300 million of loans. These loans, originally in the amount of $270 million and owed to Bank of America, were assumed in May 2005 by Fortress Investment Group LLC.

The September 2006 issue of ColoradoBiz featured an article that attempted to shed light on what private equity investors are looking for when considering an acquisition of a company. David Maney, the co-founder of Headwaters MB, a Colorado-based investment-banking firm said, “Only two questions really matter when you are evaluating a company for acquisition or buyout:

  • Is there an experienced and capable management team in place?
  • And, is the company participating in an important and vibrant market?

Before committing any money to the deal, the private equity investor must be confident that the acquired company’s management team is capable of developing a strategic vision and managing the growth of the business by executing a plan that increases revenues, reduces costs, or both.”

In essence, therefore, this acquisition is more about perceived opportunity to enhance an already successful operation, rather than a case of buying up distressed debt, or a short-term objective to “flip” the company for a premium.

In Part III, I’ll give my own take on the implications for the Winter Park Resort and community.

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