There has been a lot of good news lately about private equity coming back into the golf market. Peter Nanula’s Concert Golf Partners, Tom Bennison’s Fore Golf Partners, and Pinnacle Golf Partners have all recently announced intentions to acquire a substantial number of distressed properties. These players join established operators like ClubLink, ClubCorp and Century Partners as active buyers in the golf industry.
But while each group has closed at least one deal, these white knights are not moving at breakneck speed. In the end, ten or so sales this year won’t make much of a difference for an industry with hundreds — perhaps even thousands — of financially struggling courses.
It’s not that the buyers are not trying. Several have had courses under contract or letter of intent for months. The problem is that it is very difficult to close in this environment.
For many potential buyers the problem is the lack of financing. But even the groups with cash, like Nanula and Bennison, still face significant hurdles.
Many of the private clubs are trapped in a quagmire of legal issues related to membership plans, initiation liabilities and other issues. At The Crittenden Golf Conference, both Randy Addison with Addison Law Firm and Bennison said they would prefer, in many cases, for a course to go through bankruptcy or foreclosure before the acquisition in order to wipe the legal issues off the board.
“There was one deal that we could only do if it went through a cleansing,” Bennison said. “If we took it through a friendly foreclosure we could avoid future legal issues with members on the resign list.”
Addison said that there are typically several members who are upset but quiet, but would bring their issues to a new owner.
Bennison said the other challenge with closing deals quickly is deferred maintenance. When looking at a deal — he says he sees on average of a deal a day — he has to compute the cost of deferred maintenance into his calculation. Many courses have invested little into their properties over the past three to five years. Bennison said a course should be investing 10 percent of revenue each year. So, he has to factor in the cost to get the course back up to market level — and that can significantly reduce the amount he can spend on the acquisition.
Still other industry observers say that there is little incentive for courses to sell, unless they are facing bankruptcy or foreclosure. Nanula and others have been very clear about the types of courses they are looking to buy, and that is because, despite the fact that a lot of people want to sell, few want to sell for the prices that the buyers are willing to pay.
There is no quick fix for golf. The industry simply must wait out the correction process — allowing the white knights to clean up the foreclosures and bankruptcies — a process that will be very slow and arduous. Then, when the worst of the market has been dredged, commerce will be able to flow again in a more normal pattern.
Correction is happening. Let’s just hope rounds improve before more courses fall into the danger zone and extend this painfully slow process.