Thursday, December 21, 2006
Steamboat Springs The press release announcing the sale of the Steamboat Ski Area on Tuesday said Intrawest, but make no mistake, the new owner of the ski area will be Fortress Investment Group if the $265 million sale goes through as planned.
Fortress, a private equity firm and hedge fund, entered the ski industry when it acquired Intrawest in October for $1.8 billion in cash and $1 billion in debt. On Tuesday, Intrawest announced it was acquiring the Steamboat Ski Area from American Skiing Co. The deal is expected to close by the end of March.
It is Fortress' money that will be used to acquire Steamboat, and it is Fortress that will expect a return on investments in the resort, analysts said.
Based in New York, Fortress was formed in 1998 and has five principals - Chief Executive Officer Wesley Edens, Robert Kauffman, Randal Nardone, Peter Briger and Michael Novogratz. Today, the company manages about $26 billion in assets.
No one with Fortress could be reached for comment Wednesday. But analysts familiar with the company said it's not a big surprise the company dove into the ski industry. Purchasing Intrawest made sense, said JMP Securities analyst Will Marks. Fortress "is a company that looks for assets that it can finance easily," Marks said.
Ski areas are unique because they can be purchased for about 10 times yearly earnings, while other investments such as warehouses or office space can cost as much as 20 times earnings, Marks said.
The Wall Street Journal reported in an article on Dec. 2 that the acquisition of ski areas by private equity firms likely will continue at a brisk pace. The Journal reported that such firms have access to the large amounts of cash necessary to make improvements to ski resorts and raise their values for possible sale later.
Intrawest has interests in 10 North American ski resorts including Copper Mountain and Winter Park. Intrawest will be part of a "huge company," and as such, Fortress likely will be hands-off when it comes to managing the ski areas, Marks said.
"They are using outside management," Marks said. "They're not going to try to run Steamboat from New York City."
Fortress started as a private equity firm and has since expanded into hedge funds, real estate and debt. The company has offices worldwide and 500 employees.
The firm manages about $9.4 billion in hedge funds and a $13.6 billion private equity fund. The equity fund invests in North America and Western Europe and acquires asset-based businesses with significant cash flows. The firm collects a management fee based on the performance of its investments.
Since March 2005 the company's assets have doubled, according to Bloomberg. The firm's assets have grown from about $1.2 billion in December 2001 to $26 billion as of September 2006, according to a Nov. 8 Securities and Exchange filing.
The filing was made because the company plans to go public.
When Fortress goes public, the five principals in the firm will retain 90 percent control and $750 million in stock would be sold that could be invested in new or existing Fortress assets.
Investor analysts have noted that once Fortress becomes a publicly traded company, it will be subject to SEC disclosures that include information private equity firms would rather not disclose, like what the returns are on Fortress investments. No U.S. firms comparable to Fortress have gone public, but others might follow its lead, experts say.
Fortress in the SEC filing stated it was going public to offer incentives to its employees through stock options and to allow the firm to "more efficiently access capital."
On the same day it bought Steamboat, Fortress made another major announcement. Nomura Group, a global financial services group, announced it was acquiring a 15 percent stake in Fortress so it would be easier for both companies to gain access to each other's markets. It is an $888 million deal with the proceeds going to Fortress.