Mackinac Partners

Case Studies

Maximizing Shareholder Value through Restructuring and M&A in the International Leisure Industry

Interim Management/Restructuring/Compliance/International M&A

Sunterra Corporation was one of the world’s largest vacation ownership companies, boasting approximately 100 resorts and 300,000 owner families worldwide. During 2005 and into early 2006, Sunterra’s European operations experienced significant liquidity constraints and were struggling to remain cash flow positive. In May 2006, the Company retained Mackinac Partners to assist with a restructuring of its European operations.

During the early phases of the European restructuring, accounting improprieties were alleged and investigations proved their accuracy. While the improprieties appeared to be primarily related to European operations, the ramifications affected both the European subsidiary as well as the U.S.-based corporate entity. These improprieties led to an informal SEC investigation, the Company’s NASDAQ delisting, a required restatement of the previous three years financial statements (and subsequent re-audit of those statements) and dismissal and/or resignation of numerous executive level personnel.

While Mackinac Partners was originally engaged to lead a restructuring of the Company’s European operations, its role was soon increased to guide the entire Company through an out-of-court restructuring, including filling the roles of interim President and CEO of Sunterra Corporation and COO of Sunterra Europe’s operations.

The implementation of certain cost cutting measures and the streamlining of operations and management led to great success. By August 2006, Sunterra Europe recorded its second consecutive month of net income for the first time since December 2004. With this success noted, the Board of Directors determined that the European subsidiary needed to be sold and strategic alternatives for the U.S. operations should be explored in order to maximize shareholder value.

While Mackinac Partners continued to stabilize the Company’s corporate and European operations, it also oversaw the Company’s other strategic initiatives. Investment bankers were engaged to pursue a sale of the European subsidiary and recommend a strategic plan for the U.S.

Despite significant obstacles, and under the guidance of Mackinac Partners, Sunterra Europe quickly returned to generating a multi-million dollar positive cash flow and a robust sales process was under way. By January 2007, several expressions of interest were received for Sunterra Europe and one for North America. By February 2007, the party interested in Sunterra’s North American Operations was convinced that a purchase of the entire company was in its best interest and revised its offer accordingly.

After significant due diligence and negotiations, Diamond Resorts LLC submitted a tender offer for all of the Company’s outstanding shares, an approximately 700M deal. The tender offer represented a 35% premium over the price of Sunterra’s common stock and all outstanding shares were tendered in April 2007. As a result of the tender, Sunterra Corporation became a wholly-owned subsidiary of Diamond Resorts Holdings, LLC. During the transition phase, Mackinac Partners continued to advise Diamond Resorts, subsequently serving as interim COO of Sunterra Europe and financial advisors to the Company.

The transaction is one of the largest time-share industry acquisitions ever, analysts reported, making Las Vegas-based Diamond Resorts one of the industry’s largest companies, rivaling such giants as the Wyndham hotel chain, Marriott’s vacation ownership division and two privately held time share operators, Westgate Resorts and The Berkley Group, according to the American Resort Development Association, the largest time share trade organization.