Page 13 - GBC summer 2016

Hole #13, Mystic Golf Club
Photo courtesy of GolfNorth
are now from private clubs whereas five years ago that would have been one in ten.
“Every club leader who believes ‘there must be a better way’ than the current stand-alone platform should do the research, referral interviews, and due diligence to find out if third party management is a fit for their club.” Troon recent- ly expanded into Canada with their first course being Sagebrush Golf Club in BC.
So, what are the driving forces supporting these multi-course business models here in Canada?
CAnADIAn mArKetPLACe
To acquire a portfolio of golf courses, a multi-course-operator must find motivated “sellers.” In today’s marketplace, it is unlikely that a multi-course strategy will be estab- lished through new construction of many golf courses.
The option to purchase, rather than build, is now much more com- pelling in most situations. Or, the option to consolidate a portfolio of leased properties or management contracts.
Until recently, there were relatively few motivated sellers in Canada. We had a very stable golf market, enjoying the benefits of the highest per capita golf participation rate of any country in the world, and continuous growth. But, those circumstances have shifted with
the slow recovery from a serious recession combined with an over- supply of golf courses. There are now financial pressures on some, and others who are simply ready for a timely exit strategy after a career in golf course ownership.
So, the Canadian golf market now has more motivated “sellers.” The catch with this statement, however, is that existing owners will sometimes hold onto the belief that their property is worth what it was when their operation was at its peak. Sometimes, the financial statements no longer justify those higher valuations.
There can also be significant emotional equity in the owner’s heart. There is sometimes a signifi- cant gap between the buyer and seller’s expectations that still needs to be negotiated.
At GolfNorth, COO Mike Garside explains, “The MCO model lends itself to creating efficiencies in operations, procurement, and marketing that the individual operator simply cannot.
“To overcome increasing mini- mum wages and payroll costs, for example, we have the ability to have crossover regarding manage- ment teams and employees being involved with multiple courses. Not only does this bring a gener- ous level of efficiency, it further develops an increase in consistent service levels.
“There are also great synergies when it comes to advertising and promotion in regions where the MCO has multiple courses.”
These kinds of efficiencies of scale may bridge the gap between an independent operator’s expectations and the multi-course-operator’s, allowing for a mutually beneficial agreement.
ALternAtIVeACQuISItIOn StrAtegIeS
There are several alternative acquisition strategies available for consideration. Generally speaking, the three leading models are Purchase Sale Agreements (PSA), Lease Agreements, and Management Agreements. There are also numer- ous variations and combinations of these three that can be negotiated if the two parties are so inclined.
The PSA is the traditional model of an outright sale. It is the cleanest scenario for both parties and, once the transaction is com- pleted, life goes on independently.
If the golf course is profitable, a multiple of EBITDA is the leading reference point for valuation, varying by region and type of golf course. Typically the valuation is based on historical EBITDA less capital maintenance, times a multiple of 8-11, with most being in the 9-10 range. The deferred capital mainte- nance is normally allowed for at 3-5% of gross revenues, which reduces the valuation.
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