©Said Business School 2018

Resorts: A Secondary Buyout?

Background: You are an investment executive in a UK PE fund. Your fund is focussed on

transactions in the value range £50-250m and has a track record in consumer and leisure facing
sectors and buy & build investments. Your firm raised Fund III at £300m, three years ago and the
team have invested £175m of that fund in 4 transactions. The investments are performing
broadly to plan.

You have received a call from a partner at Mid-Market Corporate Finance. You have known her
for many years, and she has a good reputation in the industry. She wants you to sign an NDA
and to send you some information on a business she is working on that she thinks is “right up
your street”. You agree and after signing the NDA you receive this document.

PROJECT RESORTS

The Business: Resorts is a unique, British operator of holiday parks. The parks are located at
five sites Isle of Wight, Hampshire, Lincolnshire, Snowdonia National Park and New Forest.
All sites provide a range of high-quality accommodation choices from luxury holiday lodges
and cottages with private hot tubs to camping facilities.
The business has four core revenue streams:

 Holiday Rental Income: Rentals are received for the use of the site’s homes,
caravans and camp sites. These are typically paid in advance by holidaying
customers. A week self-catering in July for 2 Adults and Two Children might cost
£500-£1,000 depending on site and high/low season.
 On Site Revenues: Amounts spent by customers during their stay including food,
drink and entertainments. These are usually paid during a customer’s stay, but
events can be pre-booked and paid.
 Caravan Sale Income: Regular customers who wish to frequently use a particular
site, or to share it with friends and family, often choose to purchase their own
permanent caravan or Lodge on a particular site. Static vans cost £30k-£90k. Lodges
cost £80k-£300k. Most are financed by loans for which Resorts receives a
commission.
 Ground Rents: These customer-owned caravans pay a ground rent to stay on site
and a service charge for the upkeep of the site. Resorts may also provide owners
with the ability to rent their Caravans to Resorts customers when they are not using
them.

This case study was written by John Gilligan at Said Business School in 2018 for class discussion rather than to illustrate effective or
ineffective management of the situation(s) discussed.
©Said Business School 2018

Management: The business was founded in 2008 by a three-man management team. They
were originally backed by a UK PE Firm who sold to another PE led secondary buy out in
2015. All the management are keen to remain invested in the business. Management own
45% of the equity of the business.
The Market: Domestic UK holidays, so called “Staycations”, have been steadily rising for over a
decade. This growth accelerated after the June 2016 BREXIT referendum rising due to a combination
of the fall in the value of Sterling and the recent hot, dry summers. The domestic holiday option
became both relatively cheaper and relatively more attractive to customers.

Holiday parks are available across the country at a very broad range of price points. The sector is
fragmented and owning a site is capital intensive as customer’s expectations increase over time.
The key drivers of the market are location, value and the weather. Successful operators provide an
array of high value experiences targeted at both children and adults to capture a dominant share of
the customer’s holiday expenditure during their stay.

Customers who wish to own a holiday home can buy a permanent static caravan on their favourite
site. They either use it as a holiday home or may let it to paying customers when they are not using
it. They own the van but lease the position on site typically for 10-12 years, with an option to extend
as long as the asset is well maintained. Lodges are also owned on leases.

The business therefore combines freehold land assets that are either leased on long term rentals to
owner-customers or used to provide holidays to those wishing to stay in the UK. The economic
characteristics of the business and the market are very favourable to a Private Equity owner.

Strategy: The company has a growth strategy based on rolling out its proven class-based model
increasing the number of centres from 10 to 15 in the next five years. Following an £8m
refurbishment of the site in Lincolnshire, the first acquisition in the New Forest was completed in
2017. The business seeks to convert holiday rental income into service rental income from owners.

Financial performance:

The business has significantly exceeded its business plan and is continuing to grow organically and
by focussed acquisitions. The plan is largely organic growth as acquisitions are opportunistic and
difficult to plan for.

Date Dec 2015 Dec 2016 Dec 2017 Dec 2018 Dec 2019 Dec 2020 Dec 2021 Dec 2022
Actual Actual Actual Budget Forecast Forecast Forecast Forecast
Sales £m 20,035 31,914 51,594 64,281 71,307 74,908 76,860 79,560

Gross Margin £m 12,470 19,263 33,437 35,129 42,155 47,213 51,934 57,128
Overheads £m - 9,179 - 15,490 - 26,743 - 26,743 - 28,749 - 30,186 - 31,243 - 32,336

EBIT £m 3,291 3,773 6,694 8,386 13,406 17,027 20,692 24,792

D&A £m 645 1,304 3,402 5,317 5,666 6,022 6,380 6,658

EBITDA £m 3,936 5,077 10,096 13,703 19,072 23,049 27,072 31,450

Free Cashflow £m 365 - 5,399 1,373 6,534 2,773 5,171 9,095 11,888

This case study was written by John Gilligan at Said Business School in 2018 for class discussion rather than to illustrate effective or
ineffective management of the situation(s) discussed.
©Said Business School 2018

The current year EBITDA is £14m and the EBITDA Margin is 20%. The CAGR of Sales is 55%.

Management’s Projections are attached in Excel. They have been subject to Vendor Due Diligence
that will be provided to potential purchasers.

The Opportunity: Away is owned by a UK PE house and its founders who, having received numerous
approaches to acquire the business, have appointed Mid-Market Corporate Finance to assess and
evaluate a potential refinancing or a disposal to trade or private equity. The executive management
team wish to remain with the business and would reinvest 50% of their net of tax proceeds from any
sale to a PE fund.

Task: You should prepare:

1. Your Debt-Free Cash-Free Enterprise Valuation of the Business, based the financial
information contained in the pre-sale Information Document.

2. A demonstration of an understanding of the drivers of the sector and an articulation of the

strategy that you would recommend the management to follow, and the financial
consequences of that strategy in terms of M&A, CAPEX and any other matter that you think
is relevant.

3. You should prepare a clear fully funded indicative offer based on your valuation on the
attached “Super Simple Model” (In Excel attached to the projections).

This case study was written by John Gilligan at Said Business School in 2018 for class discussion rather than to illustrate effective or
ineffective management of the situation(s) discussed.
©Said Business School 2018

SUPER SIMPLIFIED STRUCTURING MODEL – Model Description

(data meaningless)
Cell Key
Structural assumption
Input Variable
calculation Area
Key Output Area

Acquisition Statistics
Enterprise Value Units
Structuring EBITDA £m 13.7 From Historic Data
Acquisition Multiple x EBITDA 99 Key Input Drives EV above
Enterprise Value £m 1,358.93 EV = EBITDA x Multiple

Funding Required Units £m Commentary

Refinance Existing Debt 98.03
Equity Value 1,260.90
Enterprise Value £m 1,358.93 EV = EBITDA x Multiple
Fees & Costs £m 3.0 See Below
Total £m 1,361.93 Total to be Funded

Total Funding Units £m

Debt £m 617.6945 From below
Equity £m 744.23 From below
Total £m 1,361.93 Total Funding

Equity Value Equity % £m

Institutions 55% £m 693.49
Management 45% £m 567.40
Total 100% £m 1,260.90

Funded By
Management Roll Over %ge 50.0%
Cash £m 283.70
Reinvested £m 283.70
Total £m 567.40

Debt Capacity
Structuring EBITDA £m 13.7 From Historic Data
Debt Mutiple x EBITDA 45 Key Input Drives Amount of Debt
Acquisition Debt £m 617.69 Total Debt = EBITDA X Debt Multiple

Debt Structure X Ebitda Units £m

Amortising TLA Loan 35.00 £m 480.43 %ge Amortising Loan
TLB Loan/ Unitranche 10.00 £m 137.27 Balance of Debt in Bullet Loan
Total Debt 45.00 £m 617.69 Total Debt

Debt Costs Units

Amortising TLA Loan %ge 3.00% Cost of Amortising Debt
Term Yrs 6.0 Life of Amortising Loan (equal Repayments)
TLB Loan/ Unitranche %ge 4.50% Cost of Bullet Loan Etc

This case study was written by John Gilligan at Said Business School in 2018 for class discussion rather than to illustrate effective or
ineffective management of the situation(s) discussed.
©Said Business School 2018

Equity
Equity % Units £m
Loanstock £m 743.2 Institutional Loanstock - Balancing Number
Management Loanstock £m 0.0
A Ords 100.0% £m 1.0 Assumed Minimal Ordinary Equity & %ge
Mgmt Ords 0.0% £m 0.0 Mgmt assumed to Receive nil Price Options
Total 100.0% £m 744.2334 Total Equity

Loanstock costs Units

Loanstock %ge 10.00% Cost of Loanstock - PIK

Equity Returns
IRR %ge 22% IRR of Total Institutional Inv (20%+)

Cash on cash (TVPI) £ 2.75 TVPI of Total Institutional Inv (~2.5-3.0+)

Sensitivity - Exit Year
Year Or Exit Year 3 4 5
IRR %ge 22% 33% 28% 22%

TVPI £ 2.75 2.38 2.65 2.75

Exit Assumption Units

Exit Year Year 5.0 Year of Exit (max 5)
x
Incr/(Decr) in Entry multiple EBITDA - Change in Exit Multiple vs Entry
x
Exit EV x EBITDA 99.0 Exit EBITDA Multiple for EV
Exit EBITDA £m 22.9 Assumed Exit EBITDA

Exit Enterprise Value £m 2,267.3 Exit EV = Exit EBITDA x Exit Multiple

Confidentiality: You are reminded of the terms of the NDA signed prior to receiving this
information. All contacts must be strictly with the deal team at Mid-Market CF. No contact with
the company, its employees, shareholders or customers is permitted.

Sources & References:

The author of this case, John Gilligan, had no involvement in the company on which this case is based. The
projections are not those of the business and the case is based solely on public information and does not represent
the views of any of people in the case and no editorial consents were sought in preparing it. Any errors and
omissions are the authors.

This case study was written by John Gilligan at Said Business School in 2018 for class discussion rather than to illustrate effective or
ineffective management of the situation(s) discussed.