DRI purchased by Apollo Global Management, LLC

[ccwu]

thinking out loud it (which can be dangerous).....

there's probably a due diligence period when Apollo looks at the books and all things financial. I wonder if there's any unreported significant material fact which would cause a rethink. I guess those private equity guys know what they getting... or do they. The joys of being public.

Good luck.

Is Apollo Returning to Its 'Junk' Roots With Its Acquisition of Diamond Resorts?
https://www.thestreet.com/story/136...f-diamond-resorts.html?puc=yahoo&cm_ven=YAHOO

 

[seascapemvy]

Now I am not sure what this means or when we will know but give it time. However I don't think this is the end deal. I think its a start. Look back at other business deals. One of the most interesting was Sears and Kmart. Sears bought some Kmart locations and that drove up Kmart stock and then shortly after Kmart used their increased stock price to buy Sears. Another deal more resently was the new land Universal bought in Florida. The land was first sold at bankruptcy to one company that already had a deal with Comcast for the land.

I don't know if there is a deal yet for Diamond but there were rumors that other timeshare companies were interested but didn't bid. But based on the price paid their values went up big and now they could make an offer and it would look like a reasonable price to pay up to 2.5 billion and not hurt their stock price. Consolidation is needed in the timeshare market and more companies implementing exist options for owners. Unless a real resale market with benefits exists it is critical for developers to impletement a buy back exist plan. Otherwise timeshare will continue to have no long term value. Wyndhams ovation is a start but neee improvements like including properties purchased via resale and a higher price over time. Now if we could get someone to buy Westgate ......

 

[RLS50]

Random thoughts...

- Apollo bought Diamond. They can use the word merger in the announcement however they want. Maybe it is works in the sense they may plan to leave things status quo (for now). But it appears Apollo is now the boss going forward and can do whatever they want with DRI, including making changes at the top if they desire, or flipping DRI to another larger company.

- I wonder if DRI knew it was challenged for the kind of growth major shareholders demanded under their current model? Especially now with recent consolidation in the industry making them even smaller? DRI appears to have been pursuing a recent strategy of buying growth, and they appeared to be paying top dollar for that (i.e. Gold Key purchase). As a relatively small player in the industry, how long could they keep buying growth if it required them to be the highest bidder in the room? In that respect going private would make sense versus remaining public.

- I also question the strategy of paying top dollar for growth via the acquisition of companies with a generally happy owner community. It is one thing to buy distressed companies with properties in disarray and raise fees rapidly. But it seems to be another thing to buy quality companies that are generally well run and maintained, and then do the same thing. With the former group you will find some owners thankful for the improvements and more willing to buy into the DRI program. By contrast with the latter group you may find a lot of resentment for dramatically increased fees without a corresponding tangible positive impact for owners.


Many questions without answers.

 

[TJALB]

DRI acquired by Apollo Mgnt Group

Yesterday, 6/29/16, I received an email from DRI informing me that Apollo Global Management ,LLC has acquired Diamond Resorts International. Does anyone know of this group and have they taken others over? Any advantages or dis-advantages? What do others think we can expect in the future?

 

[bogey21]

Yesterday, 6/29/16, I received an email from DRI informing me that Apollo Global Management ,LLC has acquired Diamond Resorts International. Does anyone know of this group and have they taken others over? Any advantages or dis-advantages? What do others think we can expect in the future?

Hope for the best and anticipate the worst.

George

 

[Kozman]

Deeded my two ownerships back and glad I divested myself of $3000.00 in yearly maintenance fees.

 

[nuwermj]

- Apollo bought Diamond. They can use the word merger in the announcement however they want. Maybe it is works in the sense they may plan to leave things status quo (for now). But it appears Apollo is now the boss going forward and can do whatever they want with DRI, including making changes at the top if they desire, or flipping DRI to another larger company.

DRI is merging with a subsidiary of Apollo, not with Apollo itself. The subsidiary is Dakota Merger Sub, Inc. The reason it's a merger is that this subsidiary will take on the 2.2 billion debt for the purchase of DRI shares. Then DRI merges with Dakota Merger Sub, Inc. and it thereby becomes saddled with all that debt. There seems to be no limit to the schemes Wall Street types can think up.

- I wonder if DRI knew it was challenged for the kind of growth major shareholders demanded under their current model? Especially now with recent consolidation in the industry making them even smaller? DRI appears to have been pursuing a recent strategy of buying growth, and they appeared to be paying top dollar for that (i.e. Gold Key purchase). As a relatively small player in the industry, how long could they keep buying growth if it required them to be the highest bidder in the room? In that respect going private would make sense versus remaining public.

a) Yes, DRI knows what shareholders expected. In the summer of last year the expectation was $40-50 per share. In October, two of the hedge funds went so far as to publish an open letter challenging that "Diamond's shares are materially undervalued."

b) I don't think DRI paid top dollar for Gold Key or Intrawest. It paid 4 times the cash value for Gold Key and 3.9 times the cash value for Intrawest. Although there are not many timeshare acquisitions to compare with, ILG paid 12 time cash value for Vistana Signature.

Here's the link to the open letter:
[FONT=&quot]http://www.prnewswire.com/news-releases/frontfour-capital-and-adw-capital-send-letter-to-diamond-resorts-international-300163626.html[/FONT]

- I also question the strategy of paying top dollar for growth via the acquisition of companies with a generally happy owner community. It is one thing to buy distressed companies with properties in disarray and raise fees rapidly. But it seems to be another thing to buy quality companies that are generally well run and maintained, and then do the same thing. With the former group you will find some owners thankful for the improvements and more willing to buy into the DRI program. By contrast with the latter group you may find a lot of resentment for dramatically increased fees without a corresponding tangible positive impact for owners.

DRI's primary strategy is to buy access to owners in networks with limited flexibility and up-sell them to points. "We see an above average propensity for this customer base to purchase additional points in order to migrate out of the legacy portfolio." David Palmer sang this song at vertically every investor presentation he made over the last few years. In Diamond's case, only 20% of their sales are made to new owners (that is, people who do not already own some timeshare interest.) For comparison, Bluegreen and Marriott report that their sales targets are 50% existing owners and 50% new owners. If the new owners of DRI retain the exiting management team, I wouldn't except this strategy to change.

 

[TUGBrian]

appears the buyout has been quite good for shareholders...

http://www.forbes.com/sites/jennife...g-winner-in-apollos-latest-deal/#1d2259f37c00

 

[johndeb]

DRI - Apollo Deal

For some insight on the DRI - Apollo deal, think Cerberus buying Silverleaf Resorts a few years ago. Now part of Orange Lake and Holiday Inn Club Resorts.

I'm confident Apollo already has an agreement(s) with another timeshare company (perhaps more than one), to execute their plan. Most likely, the sum of the parts greater than the whole. My guess, it will involve one (or perhaps more than one) of the other big timeshare players. Apollo makes money buying, selling, restructuring and financial engineering of the assets they acquire. I'm also confident there is a continuation of management agreement in place with DRI, so not much will change until the next announcement from Apollo. We'll see.....

 

[skimeup]

Buy back

I am another owner who qualified for a buyback but it has been several months and I haven't received the paperwork. They want $250 for the buy back but maybe they'll just forget about me and I won't even have to pay that? I am too old to worry about my credit rating, so if they renege I won't worry!

 

[TSPam]

Hi,
Diamond bought Club Intrawest (now called Embarc--silly name I think) and now Diamond has been bought. Yikes. No Idea what this will mean for us.

Pam

 

[BobSc]

Hi, Do we know anything about this Apollo Global Management, LLC ?

Well, Apollo is no stranger to at least one of Diamond's Resorts - Mystic Palms. Apollo was the financier of that resort when Westgate execs broke away in 1997 to start Tempus Resorts. Apollo put up $40 million for the purchase of the then existing 72 condos and 600 acres off US 192, a few miles west of Disney's main gate. Tempus went bankrupt in 2010 or 2011 at which point it was acquired by Diamond.

 

[buckor]

For some insight on the DRI - Apollo deal, think Cerberus buying Silverleaf Resorts a few years ago. Now part of Orange Lake and Holiday Inn Club Resorts.

I'm confident Apollo already has an agreement(s) with another timeshare company (perhaps more than one), to execute their plan. Most likely, the sum of the parts greater than the whole. My guess, it will involve one (or perhaps more than one) of the other big timeshare players. Apollo makes money buying, selling, restructuring and financial engineering of the assets they acquire. I'm also confident there is a continuation of management agreement in place with DRI, so not much will change until the next announcement from Apollo. We'll see.....

I think this is the key with Apollo...companies like Apollo buy companies like DRI that have a significant asset base...Apollo then will get its money back, and more, by refinancing the assets if DRI. Then, Apollo sells DRI to another company (or "parts" it out) making even more in the resale. For Apollo this is all about unlocking the cash held as hard assets by DRI.

For DRI TS owners, you probably won't see much change, especially in the near term. Apollo isn't interested in maximizing value based off of changing operations ( though they will if something just makes sense).

This will be fun to watch!

 

[vacationtime1]

I think this is the key with Apollo...companies like Apollo buy companies like DRI that have a significant asset base...Apollo then will get its money back, and more, by refinancing the assets if DRI. Then, Apollo sells DRI to another company (or "parts" it out) making even more in the resale. For Apollo this is all about unlocking the cash held as hard assets by DRI.

For DRI TS owners, you probably won't see much change, especially in the near term. Apollo isn't interested in maximizing value based off of changing operations ( though they will if something just makes sense).

This will be fun to watch!

A lot more fun if you don't own DRI currently. Apollo didn't buy DRI to cut fees or to improve customer service or product flexibility.

 

[clotheshorse]

http://www.forbes.com/sites/nathanv...es-and-outmaneuvering-creditors/#268f66c6356d

Hard to say what happens going forward. Apollo is a private equity asset conglomerate, not a travel or timeshare management focused company. Interesting enough it was discussed here in the DRI forum back in Jan / Feb that Diamond's major shareholders were putting pressure on DRI management to do something to unlock the PPS value because they felt the value of the individual parts of DRI was greater than the sum.

So is this a move to transfer to Apollo who may see a way to double their investment in the DRI "asset" by breaking it up and selling off pieces to other companies?

It will be interesting to see what happens going forward.

Given Hilton is spinning off its timeshare business, maybe they will pickup some of the Club Intrawest properties if Apollo starts selling off pieces. One can only hope. Current state of timeshare mergers, acquisitions and spinoffs - stranger than fiction.

 

[Xan]

I received the same email. I just recently started the process to deed-back my three weeks I own. I sure hope this doesn't put the brakes on that...

If you are lucky enough to finalize your deed-back, it may take up to a year, and then they sell your phone number to all sorts of vacation companies, most affiliated with DRI.


Sent from my iPhone using Tapatalk

 

[WBP]

The Saga/Drama Continues........

http://www.businesswire.com/news/ho...-INTERNATIONAL-SHAREHOLDER-ALERT-SEC-Attorney

 

[nuwermj]

The list of law firms questioning this merger is getting longer. My guess is that DRI insiders will retain an ownership stake and are looking to make additional profit when Apollo sells DRI in a few year. $30 is too low, but the insiders are looking to get the higher price in the future transaction.

Press Releases:

SHAREHOLDER ALERT: Brodsky & Smith, LLC Announces an Investigation of The Board of Directors of Diamond Resorts International, Inc.- DRII

DIAMOND RESORTS INTERNATIONAL, INC. SHAREHOLDER ALERT: Former SEC Attorney Willie Briscoe and Powers Taylor LLP Investigate Sale to Apollo Global Management, LLC

Diamond Resorts International, Inc. Acquisition May Not Be in the Best Interests of DRII Shareholders (WeissLaw LLP is investigating possible breaches of fiduciary duty)

Wolf Popper LLP Investigates Buyout of Diamond Resorts International, Inc. by Apollo Global Management, LLC

SHAREHOLDER ALERT: Brower Piven Commences An Investigation Into The Proposed Sale Of Diamond Resorts International, Inc. And Encourages Investors To Contact The Firm For Additional Information

DIAMOND RESORTS INTERNATIONAL, INC. SHAREHOLDER ALERT: Rigrodsky & Long, P.A. Announces Investigation Of Buyout

SHAREHOLDER ALERT: Levi & Korsinsky, LLP Announces Investigation Concerning Whether the Sale of Diamond Resorts International, Inc. to Apollo Group Management, LLC for $30.25 Per Share is Fair to Shareholders - DRII

DIAMOND RESORTS (DRII) ALERT: Johnson & Weaver, LLP Launches an Investigation into the Fairness of Price and Process in Proposed Sale of Diamond Resorts International, Inc. Is $30.25 a Fair Price?

DIAMOND RESORTS (DRII) SHAREHOLDER ALERT – Andrews & Springer LLC Is Investigating Diamond Resorts International, Inc. For Potential Breaches of Fiduciary Duty

 

[tomt73]

I've Been In This Business

I spent much of my career as an investment analyst and mergers/acquisition facilitator. Private equity firms are buyers for one reason only: They see an opportunity to manage the asset for maximum cash flow. In "distressed" situations, they see a chance to fix the problems and flip the asset to a strategic buyer. Looking at the DRI financial data on the WSJ link, I see a ho-hum performer with a recent downtrend despite sales gains over the past five years. You can bet that Apollo will make strategic moves to improve cash flow. I would say that DRI's deed-back program will be in danger, and some MF "creep" can be expected as well. I also expect them to put pressure on the sales front.

 

[Kozman]

I spent much of my career as an investment analyst and mergers/acquisition facilitator. Private equity firms are buyers for one reason only: They see an opportunity to manage the asset for maximum cash flow. In "distressed" situations, they see a chance to fix the problems and flip the asset to a strategic buyer. Looking at the DRI financial data on the WSJ link, I see a ho-hum performer with a recent downtrend despite sales gains over the past five years. You can bet that Apollo will make strategic moves to improve cash flow. I would say that DRI's deed-back program will be in danger, and some MF "creep" can be expected as well. I also expect them to put pressure on the sales front.

News like this makes me even happier that I got rid of $3000 per year in maintenance fees via the deed back program with DRI last year! Maintenance fee creep was more like maintenance fee leap after DRI took over. It went up 23% in one of the earlier years. Plus, DRI absolutely would not process my banking request to anyone except RCI regardless of phone calls and multiple attempts. I'm glad to be out of their clutches.

 

[dougp26364]

I spent much of my career as an investment analyst and mergers/acquisition facilitator. Private equity firms are buyers for one reason only: They see an opportunity to manage the asset for maximum cash flow. In "distressed" situations, they see a chance to fix the problems and flip the asset to a strategic buyer. Looking at the DRI financial data on the WSJ link, I see a ho-hum performer with a recent downtrend despite sales gains over the past five years. You can bet that Apollo will make strategic moves to improve cash flow. I would say that DRI's deed-back program will be in danger, and some MF "creep" can be expected as well. I also expect them to put pressure on the sales front.

News like this makes me even happier that I got rid of $3000 per year in maintenance fees via the deed back program with DRI last year! Maintenance fee creep was more like maintenance fee leap after DRI took over. It went up 23% in one of the earlier years. Plus, DRI absolutely would not process my banking request to anyone except RCI regardless of phone calls and multiple attempts. I'm glad to be out of their clutches.

Ditto! As soon as I read that a private equity firm had acquired DRI, I was past ecstatic that we had given up our deeds. I see either the desire to increase cash flow, which will come directly from owners pockets with no improvement of the product. I just don't see this in anyway being a good thing for the owners.

 

[RLS50]

DRI is merging with a subsidiary of Apollo, not with Apollo itself. The subsidiary is Dakota Merger Sub, Inc. The reason it's a merger is that this subsidiary will take on the 2.2 billion debt for the purchase of DRI shares. Then DRI merges with Dakota Merger Sub, Inc. and it thereby becomes saddled with all that debt. There seems to be no limit to the schemes Wall Street types can think up.

I had a long response typed and when I hit reply I got a server not available message and lost it all. Very frustrating.

So short version. First off, thanks for your reply and those details, some of which I knew, some I didn't.

As it relates to the merger, thanks for highlighting the subsidiary detail. I had missed that originally. But outside of being technically correct to call it a merger, what are your thoughts on next steps? This current structure, with all that debt now included as you pointed out, seems to be temporary? I get the current structure...to keep things running status quo for now...but what's next? This announcement seems like DRI got moved to a temporary parking lot under the Apollo umbrella until the next move is made.

And as to DRI's sales model, with hindsight being 20/20 I wonder if it worked in the short term, but was always going to eventually stall and stagnate longer term? It just never felt sustainable long term to me.

As a relatively newer and smaller timeshare company, what are they really known for? What corporate brand or identity have they created this past 7-8 years? For example, when we hear people talk about great customer service or great properties in the timeshare world do we ever hear DRI mentioned? Ever? Are they even top 5? So what brand have they built that has any staying power with regards to customer loyalty and goodwill? I mean as a boutique company shouldn't they be known for something more than merely some of the highest fees in the industry? At some point that would seem like it would catch up with them.

I could be wrong and just my opinion, but what limited time I have had to see and learn about the DRI model, it just never seemed viable or investable longer term to me.

Maybe I am missing something.

 

[RLS50]

I just don't see this in anyway being a good thing for the owners.

Very possible.

But to add to my response to Nuwermj, from what I have seen from DRI so far as a customer, this felt like a company that was taken public so it could be sold someday. Was DRI really building any kind of customer brand? Or did it seem focused almost entirely on growing sales, with far less focus on the actual customer vacation experience?

I don't know. Maybe this turns out even worse for DRI owners. But I think this day was probably always inevitable based on how the company was structured and run.

Now the question might be who out there eventually buys DRI from Apollo and how much.

 

[nuwermj]

... But outside of being technically correct to call it a merger, what are your thoughts on next steps? This current structure, with all that debt now included as you pointed out, seems to be temporary? I get the current structure...to keep things running status quo for now...but what's next? This announcement seems like DRI got moved to a temporary parking lot under the Apollo umbrella until the next move is made.

I think "temporary parking lot" is a good metaphor. From what I've read about private equity, they are going to sell DRI in a few years in order to realize their profits. I don't expect that Diamond will be broken up and sold in pieces. First, because Diamond's cash flow is tied to its economies of scale. And second, other than Diamond itself, there do not appear to be many buyers out there in the market. Diamond's revenues come from management contracts (40%) and point sales (60%). But the point sales seem to need The Club and The Club needs all the managed resorts. So I don't see a break-up in the future.

Apollo bought the Great Wolf Lodge in May 2012 for $876 million and sold it in May 2015 for $1.35 billion, realizing a $474 million in profit. Although Great Wolf is not a timeshare company, I'm expecting something similar for DRI. My understanding of Diamond is that they have created a successful growth company, but, for reasons I don't fully understand, major segments of the financial sector have reservations. I presume DRI management -- Cloobeck, Palmer, et al. -- and Apollo have a plan to correct this problem. Then, Diamond will be sold as a public company again.

And as to DRI's sales model, with hindsight being 20/20 I wonder if it worked in the short term, but was always going to eventually stall and stagnate longer term? It just never felt sustainable long term to me.

As best I can tell, this is the view of many Wall Street types. Diamond's sole reliance on inventory recovery and the fact that they do not build inventory has been questioned at many investor's presentations over the last year or two. On the other hand, Diamond's strategy of buying access to deeded owners and converting them to points seems to be favorable to Wall Street analysts.

As a relatively newer and smaller timeshare company, what are they really known for? What corporate brand or identity have they created this past 7-8 years? For example, when we hear people talk about great customer service or great properties in the timeshare world do we ever hear DRI mentioned? Ever? Are they even top 5? So what brand have they built that has any staying power with regards to customer loyalty and goodwill? I mean as a boutique company shouldn't they be known for something more than merely some of the highest fees in the industry? At some point that would seem like it would catch up with them.

It might be that the lack of a brand name is hurting Diamond. But from what I've seen in the financial reports, Diamond's sales are doing as well as Marriott or Wyndham. Moreover, companies like The Berkley Group, Westgate, Welk and Bluegreen also don't have a popular brand name. Bluegreen, I think, is struggling, but the other three are still building in new locations. Clearly I don't have a good answer as to whether DRI's current growth model is sustainable, nor what changes they could make so that it becomes sustainable.

I could be wrong and just my opinion, but what limited time I have had to see and learn about the DRI model, it just never seemed viable or investable longer term to me.

I think many on Wall Street agree with you. That is why the stock price has remained low despite strong growth.

 

[TUGBrian]

well, color me surprised!

http://www.gurufocus.com/news/42955...-ceo-david-f-palmer-sold-19-million-of-stocks