ClubCorp announced on Aug. 13 it is acquiring Sequoia Golf for $265 million, making it the largest owner of golf courses in the world, and the second-largest management company.

The publicly traded ClubCorp, which already manages 110 golf facilities with a combined 140 18-hole equivalent golf courses, will add 30 owned, three leased and 17 managed properties to its portfolio. When the acquisition is complete, it will operate 157 facilities with 194 18-hole equivalent courses. It will own 174 18-hole equivalent courses, 15 more than Japan’s Accordia Golf, which was the leader in ownership.

Only Troon, with 207 18-hole equivalent courses, is larger. But Troon is a third-party operator. ClubCorp owns the bulk of its properties, and with this acquisition it will enter the third-party management business. 

“ClubCorp has historically shied away from management” said Eric Affeldt, CEO of ClubCorp. “We said if we would enter [that market] it would be thorugh an acquisition like this. This gives us the ability to compete with Troon or KemperSports.”

Sequoia’s adjusted EBITDA was $24.4 million for the 12 months that ended on June 30. Its revenue was $98.4 million, meaning it was earning a 25 percent profit in a time when many golf courses are struggling. But Sequoia had $10.5 million in interest expense.

Joe Guerra, President and founder of Sequoia Golf, said the acquisition is a reflection of the strength of the private club market segment that continues to thrive and grow.

“We have seen net growth in every cluster for two years in a row,” he said about his company’s financial performance. “Memberships are up and members are playing more golf than they ever have.”

He said the negative press about private clubs is based on broken clubs that were either ill conceived or are poorly run.

“We go into those clubs and fix them,” he said. “We have a very sustainable, competitive advantage, as does ClubCorp.”

Industry experts said the $265 million sale price appeared to be at market rates.

“This was a great opportunity for ClubCorp to buy at the bottom of the market and ride the appreciation up and a good opportunity for Joe Guerra to get rid of the burden of a high debt load and recapitalize the portfolio,” said Steven Ekovich, managing director of National Golf & Resort Properties Group at Marcus & Millichap. 

Guerra founded Sequoia Golf with his brother Ken in 2002 with funding from Parthenon Capital, which has worked with the company since its inception. Guerra had previously worked at American Golf, where he had been co-president prior to its acquisition by Goldman Sachs.

Sequoia’s first acquisition was the $55 million purchase of seven Canongate properties in south Atlanta from the Patten Seed Company. The company grew through acquisitions, building tight clusters in Atlanta, Houston and most recently Denver. It more recently began to take on third-party management deals.

But Parthenon Capital was looking for an exit strategy and that forced Guerra to look at all finance options. Guerra said he began looking at all finance options in September 2013, and did not know what to expect, as golf had a poor reputation in the finance industry. He said ClubCorp going public a year ago provided transparency on fianncials, which has helped other investors better understand the golf industry. 

Guerra will serve as a senior advisor to help ensure a smooth transition for members and employees. Beyond that, he has no plans but is open to continuing to work with ClubCorp. 

Eric Affeldt said there will be some redundancy in skill sets and that the company wants to put the best team on the field. the company expects to save $4.5 to $6 million a year oin cost synergies. 

ClubCorp has been aggressive on the acquisition front, as it looks to grow its revenue base at a time when its existing private clubs are showing more moderate growth. Membership is growing by only 1 percent with revenue up a healthier 4 percent. 

Affeldt said ClubCorp will continue to be active in looking at acquisitions and it still has $135 million in capacity for further deals. 

The Sequoia acquisition gives ClubCorp 27,000 additional memberships, and new markets in Denver and Chicago. It will also be the dominant operator among private clubs in Atlanta and Houston. It will operate 35 clubs in Atlanta, up form 8, and 19 in Houston, up from 12. 

“Sequoia Golf aligns perfectly with our business model,” said Eric Affledt, ClubCorp’s president and CEO. “It is a strong membership business that, like ours, generates nearly 50 percent of its revenue from membership dues. Sequoia Golf will strengthen and expand our cluster strategy to familiar markets, and give us a portfolio that stands to benefit from additional revenue and adjusted EBITDA growth through reinvention. This acquisition adds shareholder value and is expected to be accretive in year one.”

Affeldt said that when it adds new clubs to its portfolio those clubs usually see a jump in membership because of the greater value of the network. Guerra added that within the markets, there are few, if any, clubs that compete with each other. 

ClubCorp intends to invest into capital projects during the next two years to improve Sequoia’s golf courses and practice facilities, and to create or update indoor and outdoor dining and social gathering facilities, and add family-friendly pool amenities and enhance fitness facilities. 

Guerra said Sequoia was hampered in recent years by a lack of capital, and that ClubCorp should be able to make investments into amenities and services that will have an immediate pay off. Affeldt said the company will speak to members to determine the best use of those funds.