Conclusions on the Intrawest Buyout by Fortress Investment Group LLC
My previous two posts on the proposed buyout of Intrawest by Fortress Investment Group concentrated on the details of the deal, local and market opinion, and an attempt to learn more about Fortress. Armed with this information, here’s my own take on the Intrawest buyout:
A Good Fit: Intrawest obviously fits the mold for Fortress Investment Group. While the ski industry cannot necessarily be classified as a growth industry (but steady it probably is), the coupling of real estate interests within the overall operation acts as a strong counterbalance to any vagaries the political or geological landscape can create. The recent sales performance of Intrawest has given an indication of management’s ability, and retained cash is a key indicator for potential return for the private equity investor.
Diversification: Always one of the soundest principles in investment and asset management, Fortress is indeed diversified in their acquisitions – across industries and overseas. Resort management would be equally diverse, albeit with a real estate bias, providing as it does a strong indication as to the continued inherent real estate potential of this valley.
Long-term view: Even though there may be some divestment of assets after the sale, Fortress has not evidenced a prior motive for takeover, break-up, or onward sale at a profit, getting out as quick as they can. They look for cash-flow potential from asset-based businesses (including under-achieving entities), as well as the growth potential in strategic development of the underlying business. Winter Park itself is a very interesting business model whereby it is currently operated by Intrawest, as opposed to “owned” – like Copper Mountain. It is my view that the ongoing development planned by Intrawest, both at the base and on-mountain, and the Ski Area operation itself, are so inextricably linked that it would not make sense to have one without the other. Fortress has the wherewithal to invest and a proven ability to leverage the public equity markets to grow the companies they acquire.
These guys are smart! Fortress has had a pretty rapid growth in equity capital under management. The company was formed in 1998, even though the principals had been investing together since 1987. By 2004, the company had $10 billion invested. In 2006 that figure stands at $23 billion. With a wide-ranging skill-set in upper management, the range of industries Fortress has become involved in is extensive. You’ve got to know what you’re doing to see such progress!
Change: I do expect change. Fortress will have their own ideas as to what needs to be done to grow the component parts of the business they wish to retain. They will get actively involved, make business decisions affecting both income generation and expense control, and enhance as opposed to make drastic changes at upper management to achieve those goals.
