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In Dec-02 Texas Pacific Group, Bain Capital and Goldman Sachs Capital Partners acquired Diageo’s fast food restaurant subsidiary Burger King for US$1.5bn (US$1.2bn cash, US$86m assumed debt and US$212.5m subordinated debt). This implied the following multiples: 93% of sales (US$1.62bn, 1.4x net tangible capital turn), 5.0x LTM EBITDA (estimated at US$300m, 18.5% margin) and 7.2x LTM EBITA (US$207m, 12.7% margin).
The transaction was financed with US$750m in senior debt (2.5x EBITDA) and US$425m in subordinated debt (total debt 3.9x EBITDA) and US$325m in equity (78/22 debt to equity). The original agreed purchase price (July-02) amounted to US$2.25bn but was subsequently reduced to US$1.5bn after experiencing difficulties in financing (a condition of the deal).

In Oct-04 affiliates of The Blackstone Group agreed to acquire all of the outstanding shares of US luxury resort owner and operator Boca Resorts, Inc. for US$24 in cash for each of the 40,174579 share oustanding valuing the equity at approximately US$1,029m on a fully diluted basis (6,590,304 stock options outstanding with weighted average strike of US$14.15). Including US$143m in debt (net of US$48m in cash) at 30-Jun-04 this valued the company at US$1,172m. This implied the following multiples for the 12 months ending 30-Jun-04: 374% of revenue (US$313m), 13.0x EBITDA (US$90.5m, 28.7% margin), 23.4x EBIT (US$50m, 16.0% margin), 147% of net tangible capital employed (US$799m).

Chairman and CEO, H. Wayne Huizenga, controlled 98.5% of the company’s vote through his ownership of all of the 255,000 outstanding shares of Class B common stock (the ‘B Shares’, 10,000 votes per share). In addition Mr Huizenga owned 6,430,696 shares of Class A common stock (the ‘A Shares’, one vote per share) and held 1,437,500 stock options.

Boca Resorts, Inc. started life in Nov-96 as Florida Panthers Holdings, Inc. (‘Holdings’) and was organized to recapitalise Mr Huizinga’s NHL interests, including: (i) the partnership interests in Florida Panthers Hockey Club, Ltd. (the ‘Panthers’) which owns and operates the Florida Panthers, a professional hockey team for the National Hockey League that commenced play in the NHL just three years prior (Oct-93) but reached the Stanley Cup Finals in their third season (1995-96); (ii) approximately 78% of the partnership interests in Decoma Miami Associates, Ltd. (‘Decoma’) which held the Arena management rights of the Panthers’ home stadium at the time, the Miami Arena, and (iii) both Arena Development, Ltd. and Arena Operator, Ltd. two Florida limited partnerships formed for the purpose of respectively developing and operating the new Broward County Civic Arena.

In 1993 Mr Huizenga had bankrolled the Panthers’ entry into the NHL through a personal guarantee on a US$25m term loan and a US$20m promissory note to finance a portion of the US$50m NHL franchise fee.

The successes on the ice came at a price though. The Panthers’ losses steadily increased to US$25.5m in the year ended 30-Jun-96 as the aggregate players’ salaries nearly doubled to US$20.1m. Total operating expenses increased to US$54.1m, while revenues amounted to just US$34.1m in the 1995-96 season. The ability to generate more revenues was limited due to the fact that under the terms of the Panthers’ lease of the Miami Arena, the Miami Heat of the National Basketball Association controlled revenue generated from the sale of suites and a majority of advertising. In addition in terms of seats the Miami Arena was the smallest in the NHL. As a result cash flowed out at a rate of US$8.8m in the year to 30-Jun-95 and US$17.4m in the year to 30-Jun-96 all financed with a short terms loan note (the ‘Partnership Note’) from Mr Huizenga totaling approximately US$41m by Nov-96. As the new Broward County Civic Arena would not be ready until the 1998-99 season, it was anticipated that the Panthers would incur net losses of US$20m+ per annum.

To make matters worse, quarterly principal payments on the term loan would start to become payable as of 1-Jul-97 at a rate of US$2.5m per annum and the US$20m promissory note matured on 1-Sep-96.

In sum: Mr Huizenga was on the hook for approximately US$85m and things would not get any better for at least two years. Hence the decision to recapitalise the business and get third party money in through a public offering.
The US$41m Partnership Note due to Mr Huizenga was converted into a total of 4,404,710 shares of Holdings common stock and the 78% interest in Decoma (valued at US$8.1m acquisition cost incurred by Mr Huizenga in 1994) was converted into 870,968 shares of Holdings common stock. Of the 5,275,678 shares issued to Mr Huizenga 255,000 were B Shares. The shares were valued at approximately US$49.1m. Including US$45m in debt transferred the valuation of the hockey team was approximately US$94.1m.

Presumably banking on the competitive successes of the hockey team Holdings completed an initial public offering of 2.7m A Shares in Nov-96 at US$10 gross per share (US$9.30 net to the company) and a concurrent private offering of 4.6m A Shares (of which 1.34m shares to members of the Huizenga family) at US$9.65 gross per share (US$9.30 net to the company). The issue price of the shares issued to Mr Huizenga in the recapitalization of US$9.30 was equal to the net issue price in to the public, despite the superior voting rights of the B Shares issued to him.

Total net proceeds of both offerings amounted to US$69,870,000 in cash of which US$45.2m was used to repay amounts outstanding under the term loan and promissory note. This left a net cash balance of US$24.7m.

Subsequent to the offering Holdings had 12,575,678 shares outstanding. Net of the US$24.7m cash balance the offering therefore valued Holdings at US$92.3m. During the 12 months ending 30-Jun-96 Holdings reported an operating loss of US$20.0m and an operating loss before depreciation and amortization (mostly of player contracts) of US$10.2m on total revenue of US$32.3m. Hence the offering valued Holdings at approximately 285% of total revenues.

Given the speculative nature of the offering it was apparently primarily aimed at hockey fans (the Nasdaq ticker symbol was: ‘PUCK’) and initially received with little enthusiasm judging from the fact that it did not trade above US$10.56 (and was apparently heavily supported as the low price was US$10.00 every single day from the second day after the start of trading (15-Nov-96).

Little enthusiasm that is until 20-Dec-96 when the company announced two acquisition agreements: (i) to acquire the Hyatt Regency Pier 66 Hotel (‘Pier 66’); and (ii) to acquire the Radisson Bahia Mar Resort and Yachting Center (‘Bahia Mar’) for 4.45m and 3.95m A Shares respectively. Mr Huizenga and three Holdings directors received 2,395,205 A Shares for their stakes in the acquired companies.

This transaction valued the equity of 2301 SE 17th St., Ltd. (the holding company of Pier 66) at US$44.5m or US$64.6m including US$20.1m in net debt at 31-Dec-04. This implied the following multiples for the year ended 31-Dec-96: 233% of revenues (US$27.7m, 1.0x capital turnover), 8.0x EBITDA (US$8.0m, 29.0% margin), 10.2x EBITA (US$6.36m, 22.9% margin), 2.3x net capital employed (US$28.1m).

The equity of Rahn Bahia Mar, Ltd. (the holding company of Bahia Mar) was valued at US$39.5m or US$52.3m including US$12.8m in net debt. This implied the following multiples for the year ended 31-Dec-96: 327% of revenues (US$16.0m, 0.6x capital turnover), 9.6x EBITDA (US$5.44m, 34.0% margin), 15.1x EBITA (US$3.47m, 21.6% margin). 1.8x net capital employed (US$28.4m).

After the agreements were announced the Holdings stock traded up rapidly to a high of US$32.50 on 27-Jan-97 awarding the company a pro forma valuation of approximately US$700m or close to 900% of total pro forma revenue for the 12 months ending 31-Dec-96 (US$79.0m, including US$35.3m in revenues from the hockey team) and 60.0x EBITDA for acquired hotels (US$13.4m in aggregate), ignoring the loss-making Florida Panthers.

As Mr Huizenga does not have a track record of issuing stock at a discount, a private placement of 2.46m new A Shares was swiftly completed on 30-Jan-97 at US$27.75 per share raising US$65,766,550 in cash for Holdings.

A string of acquisitions followed:

* On 31-Jan-97 Holdings indirectly acquired Incredible Ice, a twin-pad ice rink facility located in Coral Springs, Florida for US$8.1m in construction-related debt, US$1.0m in cash and 212,766 shares of A Shares.
* On 31-May-97 Holdings acquired the rights to operate the Gold Coast Ice Arena located in Pompano Beach, Florida in exchange for 34,760 shares of A Shares. Gold Coast was the practice facility of the Panthers.
* On 26-Jun-97 Holdings acquired all the assets of luxury resort and private club Boca Resorts from Boca Raton Hotel and Club L.P. in exchange for: (i) a non-managing general partnership interest in Panthers BRH Limited, the limited partnership which was created to own and operate Boca Resort; (ii) warrants to purchase 869,810 A Shares at US$29.01 per share; (iii) 189,574 A shares, which were used to compensate certain affiliates of Boca Raton Hotel and Club Limited Partnership (‘Boca Partnership’), the entity, which previously owned Boca Resort; (iv) 82,729 A Shares, which were used to pay persons to whom Boca Partnership is obligated to pay fees; (v) exchange rights which, when distributed, will entitle such holders, without any additional consideration, to sell their partnership interests to an affiliate of Holdings in exchange for approximately 4,242,586 A Shares exercisable at any time before 1-Jan-01 (later extended to 30-Apr-01) and (vi) the assumption of indebtbness and payment of deferred fees and additional interest charges owed by Boca Partnership in the amount of approximately US$205.9m. As the Holdings A Share closed at US$27.38 on the day before the date of the agreement (20-Mar-97) the transaction valued Boca Resorts at US$329.5m plus an estimated US$4.5m in value of the warrants.
* In Aug-97 Holdings acquired a 68% ownership interest in Registry Resort for: (i) 918,174 A Shares; (ii) warrants to purchase 325,000 A Shares (at a weighted average exercise price of US$25.67 per share) and (iii) US$75.5m in cash. Essentially all of the remaining interest was acquired in Jun-98 for approximately US$30.6m in cash.
* In Nov-97 Holdings acquired the assets of the Rolling Hills Golf Club for US$8.0m in cash.
* In Mar-98 Holdings acquired an ownership interest in Arizona Biltmore in exchange for: (i) US$126m in cash ;(ii) US$500,000 in cash payable in Apr-01; (iii) US$99.8m either in cash or A Shares (at US$26.00 per share) at the ; (iv) warrants to purchase 500,000 A Shares (at US$24.00 per share) and (v) the assumption of US$63.1m in debt, and (vi) a conditional payment in cash or A Shares up to an additional US$50m (subject to the implementation of certain developmental strategies or meeting certain profit levels over a 36 month period ending on 31-Mar-01). This amounted to approximately US$289m excluding the value of all the (explicit an implicit) warrants and the US$50.0m conditional payment.
* In Apr-98 Holdings acquired the Edgewater Beach Hotel for US$20.7m in cash at closing plus US$20.5m payable, at the election of the seller, in cash on 22-Oct-99 or A Shares at a price per share of US$24.50 at any time through 22-Oct-99.

By 30-Jun-98 Holdings had approximately 35.1m shares outstanding and the A Shares closed at US$19.69 that day valuing the equity at US$692m. Including US$474m in net debt the enterprise value amounted to US$1.17bn or 336% of pro forma revenues for the 12 months ending 30-Jun-98. However there was a big change in acquisition financing. During the year ended 30-Jun-97 Holdings spent just about US$1m in cash on acquisitions and issued (or reserved) US$187m worth of stock (at market price) to the sellers (and assumed some US$184m in debt). In contrast in the year ended 30-Jun-98 Holdings spent about US$261m in cash on acquisitions and issued (or reserved) just US$19m worth of stock (and assumed US$184m in debt). All the shares issued to sellers in exchange for the acquired resorts created quite an overhang on the market judging from the share price declining to a low of US$16.12 in Dec-97 and subsequently to an all-time low of US$7.13 in Oct-98.

In Mar-98 Holdings’ President Richard H. Evans resigned from the company. Apart from the Edgewater Beach Hotel no significant businesses were acquired by Holdings after that.

On 28-Sep-99 the name Florida Panthers Inc. was changed to Boca Resorts, Inc.. With the stock trading around US$10, below US$12 per share in book value it had clearly lost the magical effect it had on the investing public around the time of the the initial public offering.

On 25-Jul-01 the company sold the hockey team and all related assets to a group of South Florida investors for: (i) US$83.5m in cash; (ii) an US$11.3m secured promissory note and (iii) the assumption of certain off-balance sheet contingencies (including a US$10m construction obligation secured by a performance bond). For gross proceeds from the sale of the business before payment of disposal costs and income taxed of US$94.8m (about US$75m net). This was conspicuously close to the value at which the team was transferred to Holdings: approximately US$94.1m (see above). However during the period the business was owned by Holdings (Nov-96 to Jun-01) it lost an aggregate of approximately US$51.3m pre-tax. So in the end it turned out to have been just a tax shelter for the profits from the resorts.

On 22-Dec-00 the Arizona Biltmore Resort & Spa was sold for US$335m before working capital adjustments (US$283m in gross cash proceeds and US$59.4 in debt assumed by the buyer). Net proceeds amounted to US$279m. As indicated above the resort was acquired for an aggregate of US$289m plus up to US$50 in conditional payments. It is unclear whether any of these conditional payments were made.

Between Aug-98 and Dec-03 trading in the Boca Resorts stock was range-bound between approximately US$7and and US$16, until the US$24 cash per share agreement with Blackstone.