Avoid ClubCorp Holdings IPO At Current Proposed Valuation

Sep.11.13 | About: ClubCorp Holdings, (MYCC)

ClubCorp Holdings (NYSE:MYCC), a membership-based leisure company and owner-operator of golf, country, business, sports, and alumni clubs based in Dallas, TX, is attempting to raise approximately $306 million through its upcoming IPO. Goldman Sachs (NYSE:GS) and Citigroup (NYSE:C) will be lead bookrunners on the deal.

ClubCorp plans to offer 10.9 million shares and the selling shareholders plan to offer 7.1 million shares (9.8 million shares if over allotment exercised) at a price between $16 and $18. Assuming a midpoint price of $17, ClubCorp should command a market value of $1.1 billion. MYCC is expected to be listed the week of September 16.

MYCC filed on July 12, 2013.
Lead Managers: Citigroup, Goldman Sachs, Jefferies LLC
Co-Managers: BofA Merrill Lynch, Deutsche Bank Securities, Stephens, Wells Fargo Securities, LLC

Founded in Dallas in 1957, ClubCorp was acquired by KSL, a private equity firm specializing in leisure properties, in 2006, and has since invested over $350 million in developing its clubs and properties.


This IPO should be avoided at the current proposed valuation for the following reasons:

1) The company's proposed valuation is very high given the huge GAAP net losses over the past several years.

2) Membership count has been anemic growing only 2.6% as of September 3, 2013 versus December 25, 2012. This may be due to the changes in consumer spending patterns away from expensive golf memberships.

3) The offering includes a large amount of insider selling. It would be better if all the proceeds were going to the company to strengthen its balance sheet.

4) Many competitor golf courses are reducing their initiation fees thus providing a more competitive environment going forward for MYCC.

If the price range is lowered and there is less insider selling, this IPO could be more attractive. This change occurred recently with Diamond Resorts (NYSE:DRII). However, even that company, which is a good comparable to ClubCorp, is still not trading above the original proposed range.


The company owns 152 clubs and serves over 360,000 members. 103 of these clubs are golf or country clubs, and the remaining 49 are business, sports, and alumni clubs. The company also owns the real estate that houses 81 of the golf and country clubs and one of the other clubs, a decided advantage both in terms of flexibility - an under-performing club can be possibly sold on those 82 properties - and in terms of maintaining control over assets.

The demographics of the company's membership base are somewhat encouraging. Company analysts estimate the average country or golf club member at an annual household income between $180,000 and $200,000, while average household income for sports, business, or alumni club member is between $155,000 and $180,000. Like any entertainment or leisure firm, MYCC's revenue will fluctuate with the strength of the economy and that fluctuation could be significant if a recession occurs. Membership dues account for nearly half of MYCC's revenues, and the company does have a recent history of high membership retention rates (80.7% in 2012).

This company is unlikely to produce significant dividends, especially with the company investing so heavily in its facilities - nearly 8% of its revenues went to investment in facility improvement between 2007 and 2012.

If the shares do end up falling within or above the expected price range, MYCC is an IPO that should be avoided.

ClubCorp's main competition is, of course, similar types of clubs. As the largest owner-operator of private golf and country clubs in the country, ClubCorps is well-positioned to compete. ClubCorps apparently is willing to spend to maintain its competitive edge, having "reinvented" 13 of its clubs in 2012 with plans to reinvent another 11 in 2013.

The central risk to MYCC is another serious economic downturn, which remains a possibility with a weakly recovering United States and shaky Eurozone. Though ClubCorp's demographics are relatively resistant to recession, new membership and possibly overall membership would decline significantly as a result of a downturn, an effect that would especially damaging as ClubCorp continues to spend heavily on improvement of its facilities.

CEO Eric Affeldt, an add from KSL, is experienced and extremely well-connected in the hospitality industry, having worked in executive positions for KSL, Doral Golf Resort and Spa, and General Aviation Holdings.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: This article is written for informational purposes. Investors should read the prospectus and consult with their financial advisors.