Private equity bet billions on ski resorts, water parks, and casinos in 2019. Here's how coronavirus has turned that investment thesis on its head.
- Private equity has poured billions into business that get people out of the house and into locations for entertainment.
- Now, amusement parks and hotel resorts are shutting down as coronavirus keeps people indoors.
- Private-equity firms have poured billions into outdoor and visitor attractions, from TPG's investment in Viking Cruises and Cirque du Soleil, to Apollo Global Management's ownership of ClubCorp.
- The Blackstone Group is one firm that placed several related bets in 2019, taking Merlin Entertainment private in a $7.5 billion deal; taking a controlling stake in family-resort company Great Wolf in a $2.9 billion joint venture; and buying the Bellagio for $4.25 billion in a sale-leaseback deal.
- Attorneys and consultants said that the leisure and hospitality industries have been especially hard hit by the coronavirus and that private-equity firms are looking at providing portfolio companies with cash during the downturn.
- "We continue to be big believers in the sector and these are extremely high-quality assets," a spokesman for Blackstone told Business Insider.
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Many of private-equity's big bets last year centered on one idea: getting people out of the house and into locations for entertainment.
But now, amusement parks and resorts are closing to visitors and the spread of coronavirus is keeping people at home.
Legoland has announced it would close its theme and water parks in Florida and California through the month of March; Great Wolf Lodge said it would close all 19 resorts in 13 states, with plans to reopen April 2; and MGM said it would close its Las Vegas resorts, including the Bellagio.
All three of those companies are under the management of The Blackstone Group, which, in 2019 took the owner and operator of Legoland, Merlin Entertainment, private, in a $7.5 billion deal. It also took a 65% controlling stake in Great Wolf to form a $2.9 billion joint-venture with Centerbridge Partners, and bought the Bellagio for $4.25 billion in a sale-leaseback deal.
"We continue to be big believers in the sector and these are extremely high-quality assets," a spokesman for Blackstone told Business Insider.
"Fortunately, our investing model allows us to hold for the long term through periods of market turmoil."
Private-equity firms have poured billions into outdoor and visitor attractions, from TPG's investment in Viking Cruises and Cirque du Soleil, to Apollo Global Management's ownership of the golf live entertainment company ClubCorp.
Other private-equity firms like Apollo and TPG did not immediately provide comment for this story.
'Lost opportunity'
Attorneys and consultants told Business Insider that the leisure and hospitality industries have been especially hard hit by the coronavirus and that private-equity firms with investments in these areas are looking at providing their portfolio companies with cash during the downturn.
Christopher Sheaffer, a lawyer at Reed Smith who advises private-equity firms, said that he expects to see some restructurings as a result of the downturn and pointed to the hospitality sector as one obvious area where companies are hurting.
"I don't think it will be the large hotel chains filing for bankruptcy per se, but being in that sector means you are just losing revenue as opposed to deferring sales for example," he said. "It's lost opportunity. Anything in the hospitality sector is going to get beat up pretty bad here."
Typically, a private-equity firm will manage a company for between three to seven years before selling it, ideally for a profit, and any economic turmoil that occurs between that buying and selling will change how a firm manages its investment.
Steven Seisser, a private-equity lawyer at Lowenstein Sandler, said that he believed that the economy would snap back and people would start going to concerts and live events again.
"I think it's premature for anybody ... to say it's going to be a loss" for investors, said Seisser.
Right now, private-equity firms are looking into short-term liquidity solutions for their portfolio companies, while also deploying their armies of operating partners- former CEOs and other C-Suite executives who help portfolio companies make decisions about layoffs, jettisoning of business lines, and operational improvements.
Private-equity firm phones up CEOs
Eric Resnick, the CEO of private-equity firm KSL Capital Partners, oversees numerous companies within the leisure and hospitality sector, including Westin Hotels and Resorts and Moxy Hotels. The firm was formed in 2005 as a spinoff of a KKR portfolio company and it owns and operates ski resorts, hotels, fitness companies and clubs.
Resnick told Business Insider on Thursday that he is holding daily phone calls with CEOs of his investments, as well as investors in KSL Capital Partners, to talk about how they're managing the situation. On joint-CEO calls, he said, they are sharing what actions they're taking and trying to learn from each other.
At one of his companies, senior management took a 50% pay cut to keep essential service staff intact to keep business operations going, he said. Another company in which KSL Capital is a controlling shareholder, ski resort conglomerate Alterra Mountain Company, shuttered resorts coast to coast from Squaw Valley to Steamboat, to help stop the spread of coronavirus, he said.
"Your concern then turns to protecting employees and seasonal staff who are now finding themselves without a job," he said. "We're being as accommodating as we can, utilizing employee housing and assisting in transportation back to homes where they live."
But Resnick said that KSL had seen numerous downturns in the past, from the tech bubble to the global financial crisis, and that even though its portfolio was placed at the epicenter of the coronavirus meltdown, its investments were strong in the long term. He pointed to $4 billion in dry powder KSL had that it will now use, in part, as cash to alleviate its investments. And he said that his firm would not be forced to sell any of its businesses at a discount in this environment.
"If you think about a public stock, the thing that matters is the price you buy it at and price you sell it at," he said. "If it's up and down in between it can create angst. But fundamentally, it doesn't impact your return. The same thing applies."
In the long term, Resnick remained confident about people's "burning desire" to get out of the house, travel the world, and embark on adventurous excursions, especially after the downturn subsides.