Private buyers coveting ski areas

Solid gains enable some resorts to lure interested parties

Joanne Kelley, Rocky Mountain News

Tuesday, October 3, 2006

Colorado's ski industry faces one of its biggest ownership shuffles in years.

The latest wave of deals likely will put many areas back into private hands - reversing a trend that had publicly traded companies snapping up major resorts.

What has changed?

Private buyers and bidders tend to be coming to the table with gobs of capital. Before Wall Street arrived, ski-area ownership tended to be a largely local affair.

"There's a lot of money out there looking for something to do," said Ford Frick, managing director at BBC Consulting in Denver. "And ski resorts always have a little sex appeal, so that plays into it."

The new flurry of business involves:

• Private equity firm and hedge fund giant Fortress Investments buying Canada's Intrawest Corp., the public company that owns Copper Mountain and operates Winter Park.

• Publicly held American Skiing Co. putting its marquee Steamboat Ski Resort - viewed as the seventh biggest nationwide - on the block. Its investment bankers have set Wednesday as the deadline for preliminary bids.

• Tiny Sunlight Mountain Resort near Glenwood Springs waiting for a buyer interested in developing the available land at its base.

"There's a lot of activity right now; it seems to come in these cycles and waves," said Dave Belin, a director at RRC Associates, a Boulder- based research firm. "Some of these resorts have been doing really well over the last couple years. It's a sell- high mentality. You buy low, and you sell high."

That's particularly the case with Steamboat, whose financial performance has improved steadily in the past few years even as its parent company's stock languishes.

Given the huge amounts of capital private equity investors have on their hands, observers say the odds of Steamboat attracting a private buyer are high.

The seasonal nature of the business, with quarters where companies lose money each year, "doesn't always seem to match very well" with the public company approach, said BBC's Frick.

Just a decade ago, things looked different as a new breed of empire builders began shaking up the industry. Vail bought a handful of ski areas and launched an IPO. Giant Intrawest had gobbled up Copper and taken the reins at Winter Park. And American Skiing Co., which had yet to go public, was adding resorts nationwide and eventually acquired Steamboat.

Of the trickle of recent buyouts, however, all have been funded by private investors. And only Crested Butte's new owner had other ski areas in his portfolio.

By contrast, Telluride, Monarch and Powderhorn found themselves under the majority ownership of the hobbyist-style ski area owners that many had predicted would eventually become extinct.

Today, even with 26 ski areas operating in Colorado, there are still 19 different owners.

Retired airline pilot Steve Bailey sits at the helm of Powderhorn, the small Western Slope ski area near Grand Junction.

"It's a tough business, and it takes an awful lot of cash flow, but we're pleased we took it over," Bailey said. "It's important that one have pretty comfortable pockets."

Because of fierce competition, the pressure to invest in mountain upgrades can be a strain. Some of the largest companies have used real estate profits to fund expensive infrastructure upgrades. But even remote areas without any condos to sell have managed to survive.

"It's a pretty common perception that ski areas only make their money on the real estate sales," said RRC's Belin. "But would Eldora and the others still be operating their ski resorts after all these years if they weren't making any money?"

Still, the private equity model can match well with the need for big capital outlays because private owners tend to be far more comfortable taking on debt than public companies, said Sheila Broughton, who tracks Intrawest as an analyst at Vancouver-based Pacific International Securities.

"It's one of the advantages of being a privately funded company," Broughton said.

Still, there's a question mark about whether Fortress Investments' pending buyout of Intrawest will keep its ski areas in private hands.

Broughton pointed to recent reports that the mammoth Fortress has been considering an IPO, although it has yet to move forward with any possible deal.

Another possibility is that Fortress could turn around and sell off one or more of the Intrawest ski areas - perhaps the huge Whistler Blackcomb in British Columbia, or Copper - to recoup some of the $2.8 billion it paid.

"They need to get a return on the money they spent," Broughton said.

kelleyj@RockyMountainNews.com or 303-954-5068