Consolidation and Finding New Participants; Vail Buys Peak Resorts

It was July 22^nd when Vail announced it had reached an agreement to purchase Peak Resorts for $11.00 a share or a total of $264 million.  Peak Resorts, traded publicly under the symbol SKIS, closed at $5.19 on July 19.  Hard to say “no” when somebody offers you more than double your stock price.  Vail will also assume or refinance Peak’s debt, which totaled around $230 million on April 30.

Vail operates 20 mountain resorts in the west (I guess Australia is “west.”).  Peak has 17 ski areas in the northeastern U.S.  Vail also has 240 retail locations.

Vail did the deal because Peak’s “…ski areas in the Northeast are a perfect complement to our existing resorts and together will provide a very compelling offering to our guests in New York and Boston. With this acquisition, we are also able to make a much stronger connection to guests in critical cities in the Mid-Atlantic and Midwest and build on the success we have already seen with our strategy in Chicago, Minneapolis and Detroit. The acquisition fully embodies our philosophy of Epic for Everyone, making skiing and riding more accessible to guests across the U.S. and around the world.”

Vail estimates the deal will add $60 million to its EBITDA in the fiscal year ending July 31, 2021.  They estimate that the deal will increase their annual capital expenditures by $10 million a year and, during the two years after the deal closes, they expect to invest $15 million “…to elevate the guest experience at these resorts.”

Once the deal closes, “…the 2019-20 Epic Pass, Epic Local Pass and Military Epic Pass will include unlimited and unrestricted access to the 17 Peak Resorts ski areas. Guests with an Epic Day Pass will also be able to access the new ski areas as a part of the total number of days purchased. For the 2019-20 season, Vail Resorts will honor and continue to sell all Peak Resorts pass products, and Peak Resorts’ pass holders will have the option to upgrade to an Epic Pass or Epic Local Pass, following closing of the transaction.”

With that as background, let’s get to the issues I raised in the article title.

This page at the National Ski Area Association’s web site has the title, “Who Owns Which Mountain Resorts.”  It lists 13 companies in five U.S. states and two in Canada who own a total of 102 resorts, 12 of which are in Canada, 89 in the U.S., and one in Australia (Perisher owned by Vail).

The numbers on the page don’t quite match the ones in the press release but let’s assume that Vail and Peak know how many resorts they have.  Of the 102 listed, Vail and Peak together run 37, or 37% of that total.

NSAA says there were a total of 476 ski areas operating in the U.S. during the 2017/2018 season.  That’s down from 546 in 1991/1992.  They estimate there were 59.343 million snow sports visits during the 23018/2019 season.  Vail, in its most recent 10K, indicates there are 770 in North America as a whole and that there were 72.7 million visits.  Vail’s combined resorts hosted 15.8% of those visits.

Peak Resorts reported 2.4 million visits in the 2018/2019 season.  Added to Vail’s numbers, that represents 19.1% of North American visits.

Just to be clear, I think Vail got a good deal, Peak got a good price and the synergies (not just a reduction in duplicated functions) across their two resort networks are significant.  At a March. 2019 investors’ conference, Vail said they estimated there were 7.2 million destination mountain resort guests in North America.  Vail has information on 3.5 million of them- almost half- in their data base.

They plan to use, according to the presentation, predictive modeling and personalization to reach them.  I really recommend you download the presentation from their web site and review it.  There will also be more acquisitions, investments in upgrading facilities, more summer and “ancillary” activities and revenue sources, the expansion and fine tuning of their pass program and increasing connection and convenience among their many resorts.

To sum it up, they are busily seducing the most committed, higher income, snow sliding (and mountain biking, golf playing, zip line using?) customers into Vail’s tender embrace.  What a great strategy- and that’s not sarcasm.

Well, advantage big guys.  As consolidation continues (which I expect it will), what happens to the industry?

What happened in airlines? Pharmaceuticals? Internet service? Cell phones?  Looks to me like fewer competitors in an industry reduces competition and increases costs to the consumer.

But wait- there are still 770 North American resorts/hills.  That’s way more than there are, for example, airlines.  True enough.  There are also way more retailers than airlines, and how are things going for retailers?  You know, it’s just kind of occurred to me- just this minute- that mountain resorts are retail businesses.  Talk about a blinding glimpse of the obvious.

Who’s doing well at retail?  Well, I’d generally say (have said) larger brands/retailers with strong balance sheets selling products with well managed distribution who, maybe most importantly, recognized a coming revolution in retail (not limited to ecommerce) and aggressively addressed it.

Vail certainly qualifies as it’s diversified by revenue sources, going from winter to mountain resorts, and by geography, positioning itself to minimize the impact of a poor season at any one location, and as it’s spending money to reach its customers in new ways and give them the experience they believe they want.

How, though, does Vail’s excellent corporate strategy help us develop new participants?  I wrote about growing participation a couple of months ago  and won’t repeat what I said here.

I want to emphasize that management at Vail (and at Peak Resorts) are no dummies.  They know that people mostly don’t start out buying an Epic passes and going to Whistler for a week to learn.  Although maybe they go to play some golf and can be encouraged to come back next winter.  The cross-marketing opportunities abound.

What we need is for Vail to recognize how it can work with smaller resorts to develop new participants.  Of course, that’s partly what’s going on with the Peak Resorts acquisition.  As Peak says on its web site, “The majority of our resorts are located within 100 miles of major metropolitan markets, including New York City, Boston, Philadelphia, Cleveland and St. Louis, enabling day and overnight drive accessibility.” So Peak’s resorts are places where people can give snow sports a try without a major financial commitment.  Of course, it’s still not cheap and certainly our industry selects for people with some spare time and disposable income.

I expect that in its future acquisitions Vail will consider how the acquired resorts can contribute to growing participation.  I also note that even with consolidation, we’re probably not getting down to the number of internet providers, airlines, or cell service providers.  The smaller hills/resorts that don’t get run over by climate change and have confronted the changes in retail are mostly not direct competition to Vail (or other destination resorts) but they are critical for creating new customers.  I’d love to see Vail develop some programs to coordinate with them.  I’ve heard a whisper that’s already happening and I hope it’s true.