High Country Club CEO Discusses Destination Club Merger

Following the announcement of High Country Club's restructuring, many concerned members sought out High Country Club CEO Christian Kirschner to learn more about why the club did not more actively seek a merger with another destination club prior to the club's financial trouble. Kirschner responded to these questions with a letter to High Country Club members.
As a result of yesterday's questions and comments, I want to offer further disclosure regarding our company during 2008.

For the past 6 months, HCC has been in merger/acquisition negotiations with a destination club. I am under a strict confidentiality agreement so I will not be able to disclose any specifics on the transaction. At the beginning of 2008, I realized the ability to raise capital was going to be increasingly difficult with the downward trend in the economy. HCC had become a market leader and was positioned for tremendous growth in the future, but I felt like I could not grow the business to its full potential without a capital partner. Therefore, I approached several destination clubs and we made a decision to move forward with one. Documents were signed and the integration process had begun. Two and a half weeks ago the deal was terminated due to the difficulties created by the extraordinary economic events of the past 45 days.

The 6 month period while we focused our efforts on the merger caused our investor sources to halt any type of investment due to the fact we were merging. Because we essentially had been cut off from investors, we had to dramatically reduce our expenses which included our marketing costs, which caused our sales to decline although we were still able to sell a fair amount of memberships. In addition, one of our lenders terminated a $500k line of credit because of their concerns regarding the economy. However, I was certain that once the merger was announced, we would have tremendous growth from new sales and the company would be on very solid ground.

There was never any doubt in my mind we would not close on this transaction for several reasons. Most importantly, in the back of my mind I was prepared to completely give HCC away and take nothing in return personally as long as my members were protected. Secondly, a club absorbing HCC and combining operational costs would see almost no additional cost to their operations. HCC would essentially pay for itself. Given this situation, I believed beyond a shadow of a doubt I was positioning new members and old members in a very positive and stable situation for the future.

The economic events of the past 45 days changed everything. Every single prospect we had been speaking with declined further discussions of membership, all of our capital sources completely shut down, and two and a half weeks ago merger progress was terminated.
In 2 and a half weeks, along with our legal counsel, bankruptcy attorney and business advisors, we have developed the Success Plan which will enable HCC to operate, preserve member's deposits and position ourselves for growth in the future. The model will work because all of the costs are fixed and there is no dependence on new sales or investor capital.

I sincerely ask that members do not speculate on any aspect our merger discussions as it is irrelevant at this point and can only create more confusion.

Thank you again for your consideration.

Christian V. Kirschner
President & CEO

Destination club mergers typically fall into two rather broad categories: mutually beneficial and club acquisitions. Mutually beneficial exist when two similarly valued clubs join together to form a club stronger and more sustainable than they would be if they existed independently. Ultimate Resort and Private Escapes merger to form Ultimate Escapes and Quintess merging with Dream Catcher Retreats and Leading Residences of the World are examples of this. Club acquisitions typically involve a struggling or already unsuccessful club's assets, including real estate and members, being purchased by a more established destination club. Ultimate Resort acquired the assets of Tanner & Haley Destination Club following its public bankruptcy. Havens, a small destination club that struggled to get off the ground was acquired by equity destination club BelleHavens prior to any substantial problems. Ironically, BelleHavens and Crescendo Residences were acquired in a mutually beneficial merger to create the new Abercrombie & Kent Residence Club.

Both can be advantageous to both clubs and members if there is a synergy between the merging clubs. As dozens of real estate mortgages in different countries and unique membership plans are blended to create a new offering of the combined clubs, mergers and acquisitions often take many months of due diligence and negotiating prior to any formal announcements.

As addressed by Kirschner, due to the time component attached to High Country Club's current financial situation, pursuing a new merger once theirs had been terminated would not work.

If High Country Club's Success Plan can be implemented and produces a successful outcome, the management team at High Country Club and their member base should be congratulated for working together to create a sustainable destination club business model.

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Original Article
High Country Club CEO Discusses Destination Club Merger