Wednesday May 23rd, 2012 - 11:48AM
As of press time, Apollo Global Management had entered into an agreement to acquire waterpark resort owner/operator Great Wolf Resorts for approximately $703 million, including the assumption of debt, or $7.85 per share in cash, ending a public bidding war for the company. The publicly traded firm had originally accepted a bid from Apollo a month earlier until shareholders felt the price was under market value. When the bidding was opened back up, KSL Capital Partners became a serious suitor, making a pair of bids before ultimately bowing out.
These days, there is much debate within the industry about the value of a brand—particularly given the increasing role of online travel agencies or third-party intermediary sites. In the case of Great Wolf Lodge, the value is very clear, at least to the consumer. And while it may not have hundreds of properties and its brand reechoingtion may not be as widespread as Hilton or Marriott, ask just about anyone with kids about Great Wolf Lodge and chances are they can tell you about it. Despite having a mere 11 properties open and operating, Great Wolf is one of the most successful brands in the lodging industry today. During a peariod when brands have been commoditized largely by the price erosion that has taken place over the last several years, Great Wolf is truly an “experiential” brand. And I speak from “experience” when I say it’s not uncommon for a family to drop several hun- dred dollars in a weekend. But ask my kids and they will tell you it was worth every penny (after all, it’s not their money) and therefore, like many, we will go back.
As such, it makes perfect sense that companies like Apollo, KSL and a number of others, would be interested in acquiring the company.So,you ask, what’s the rub? Just a small detail like turning a profit or more accurately, not doing so. The company hasn’t made money since 2004 and it lost $25 million in 2011 despite increased revenue. I don’t have access to the books, so I’m not sure exactly what the issue is, but obviously, there are many operational challenges with a waterpark property
and such costs are clearly prohibitive—and that’s not to mention liability issues. That’s the bad news.The good news is the stock has rallied considerably in the wake of the bidding war and stands at $5.32 of press time, which marks a
52-week high and is more than twice the 52-week low.
The real question is ultimately what can private equity firm Apollo do differently to extract more profitability? Will it look to close the doors on some of the weaker performing properties? Will it look to open more properties nationwide and achieve greater economies of scale? Will it look to alter the food & beverage part of the operation, which most likely is a drain on profits but contributes to guest satisfaction.
But maybe, at the end of the day, it doesn’t have to do much. Guest demand continues to rise throughout the U.S., particularly on the leisure end, and maybe something as simple as raising rates can be a solution. In any event, it will be interesting to
see what changes are made to Great Wolf and if Apollo can keep it from going un- derwater,so to speak.