Home>News>Uncategorized>Mackinac Partners Matt Beresh and Nathan Klepacki on the challenges of Vacation Ownership M&A in the latest edition of ARDA Developments Magazine
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Mackinac Partners Matt Beresh and Nathan Klepacki on the challenges of Vacation Ownership M&A in the latest edition of ARDA Developments Magazine
October 1, 2019
Why Vacation Ownership M&A is More Difficult
By Matt Beresh, Senior Managing Director and Nathan Klepacki,
Director – Mackinac Partners
ARDA Developments Magazine,
October 1, 2019
Acquisitions are never easy. Whether you are an automobile manufacturer
acquiring a supplier, a retail chain acquiring a competitor, or a casual dining
restaurant brand acquiring a fine dining brand — acquisitions require
significant time, effort, focus, and capital, as well as an experienced point
person to manage all the moving pieces including (importantly!) the
However, acquisitions in the vacation ownership industry —
with such unique complexities as those outlined below — are among the most
difficult of all to execute successfully. Despite these inherent complexities, the
vacation ownership industry has undergone a flurry of acquisition activity over
the past decade.
If you are one of those vacation ownership companies that
has grown through an acquisition, whether driven by owner preferences, as an attractive
alternative to new developments, or an opportunistic chance to grow the bottom
line, you deserve a well-earned pat on the back.
Unique Vacation Ownership M&A Complexities
The challenges facing acquirers of vacation ownership
companies can be divided into three primary areas: legal, financial, and
The legal structure of vacation ownership inventory has evolved over time — from deeded weeks to floating weeks to points based systems. Almost every company has something unique in its structure, and acquisition targets often have a different form of inventory than the acquirer. Conversion is a near impossibility (or at least tremendously slow), so operating the multiple forms of inventory is a necessity.
Regulatory matters must be considered. Many targets operate in numerous states and/or countries; if the acquisition rationale includes geographic expansion, these may be new jurisdictions with varying regulations upon which the acquirer must quickly be educated. Furthermore, the industry’s heavy use of trusts increases regulatory oversight and limits flexibility.
Corporate entity structures are often convoluted, with separate legal entities for the real estate developer, resort management company, sales and marketing company, and/or financing company. These complexities are even greater for networks with multiple locations. Furthermore, homeowners’ associations are usually independent legal entities that often have a voice in the transaction.
Fortunately, there is a tremendous amount of legal knowledge, both inside vacation ownership companies and from law firms specializing in supporting the industry, that can help identify and resolve these issues.
No industry in the world suffers from, or is aided by, as
much “cause and effect” as the vacation ownership industry. Many vacation
ownership companies have several core competencies: contract sales, receivables
financing, management companies, amenity operators, and more. Furthermore, all
these businesses are necessarily integrated so that when you pull a lever in
one business unit, there is a ripple effect in some or all the other business
units. Typically, the effect lags the cause, making correlation difficult. Understanding
the effects an acquisition will have on an existing network takes specific
The vacation ownership industry’s complicated
business model makes determining the financial and accounting implications and
developing a credible financial forecast related to an acquisition extremely
There are many different types of financing
required to support the industry. From receivable hypothecation, to development
loans, to working capital lending, to acquisition financing, each type of
borrowing carries a different level of risk and necessitates a different
return. Further, most vacation ownership companies have several different financing
sources; the era of the “one-stop-shop” for financing ended with the Great
Recession. Due in part to this complexity, many financial institutions do not
provide adequate support to the industry.
Fortunately, there is a relatively small pool of
sophisticated lenders with deep industry knowledge, and financial advisors who
can provide management with the financial analyses and M&A skills necessary
to develop credible financial forecasts and help secure the funding necessary
to close deals.
While certain operational aspects of an acquisition in the
vacation ownership space are not dissimilar to acquisitions in any other
industry, there is no shortage of challenges in HR, IT, branding, customer
service, and other functional areas.
Realizing the savings of projected back office
synergies, which in many cases are material components of a deal thesis,
requires continued diligence for months following the closing of a transaction.
Many acquirors want to breathe a sigh of relief once an acquisition has closed,
but this is actually the time when the real work often begins. Note to the
wise: pre-closing integration planning throughout the diligence process will
even further enhance the chances of success.
One key constituent, which often has significant
influence on the success of an acquisition, is the acquired ownership base.
With large, diverse owner bases, it is inevitable that implementing the system-wide
product changes that often result from an acquisition will frustrate some
selection of owners. Unlike acquisitions in many other industries, where a disgruntled
customer can decide to “shop elsewhere,” customers in this industry can feel as
though they are “dragged along” in an acquisition.
Deftly addressing the ownership base is one more
key success factor that is unique to acquisitions in the vacation ownership
industry. Fortunately, savvy developers and their advisors have figured out
ways to cohesively blend the existing ownership base and its historical
products with the new ownership base, unlocking tremendous value within
Consolidation is not over in the vacation ownership industry
— all the underlying dynamics of aging legacy owners, increased desire for
flexibility by new owners, and economies of scale in operating large networks
remain in existence. As owner preferences continue to evolve, and especially as
millennials continue to influence the industry, the complexity of balancing
legal, financial, and operational challenges is likely to increase.
Fortunately, there are diligent legal and financial advisors who are well-versed
in industry-wide developments and will continue to offer the expertise required
to close deals and strengthen businesses.
About the Authors
Matt Beresh has over 20 years of experience providing financial and operational advisory services to healthy and distressed companies. He has been active in the vacation ownership industry for over 15 years, representing many notable developers, lenders and investors. His career in the vacation ownership industry includes $400 million of acquisitions andintegrations, $100 million of carveouts and divestitures, and numerous performance improvement and profitenhancement initiatives.
Nathan Klepacki has over 10 years of financial advisoryexperience, assisting clients with financial modeling, M&A, and strategic initiatives. His vacation
ownershipindustry experience includes strategic planning
andfinancial modeling in support of transactions, buy andsell-side advisory work,
and utilizing data analytics toimprove clients’ financial performance.