The market in UK golf clubs is now showing signs of maturity. The existing operators are attempting to differentiate their offers, and there are some highly professional and well-financed new entrants to the market. This combination has made for increased turnover, with an average of 30 golf clubs changing hands each year for the last three years.
It is important to remember that even 20 years ago there was no market – the vast majority of golf facilities were members’ clubs that never changed hands. It is only since the development boom of the 1980s, and the emergence of specialist investors like American Golf UK and Clubhaus, that there has been recognition in the UK that a golf club could be a tradable investment.
Defined niche markets
Now, a decade on, the big corporate owners are refining their strategies and attempting to occupy a clearly defined niche in the market. Clubhaus is a case in point. It has a stated ambition to focus on hybrid clubs offering more than just golf, and it sees health & fitness facilities as an integral part of its’country club’ concept. American Golf, on the other hand, tends to focus on golf as its dominant activity in each of the market segments.
This has resulted in both shedding several properties that do not fit their target mix of facilities. In 2001, Clubhaus sold Chelsfield Lakes, Kent and Stapleford Abbotts, Essex to American Golf for £6.6 million. FPDSavills was joint agent. Chelsfield had only been bought in October 1999 as part of a £12.2 million package of three properties sold by Invicta Leisure. Clubhaus has retained the other two to focus on its combined golf and country club concept.
Clubhaus has recently sold Dukes Dene near Woldingham, Kent for £2.5m. Clubhaus has subsequently reinvested some of the proceeds within the same Tandridge catchment area, buying Chartham Park in Kent from American Golf UK for £2.9 million. There is planning permission for a large leisure development in addition to the clubhouse and 18 holes of golf. The deal was not structured as a swap, but it underlines the way the corporate owners are fine-tuning their portfolios.
Typical earnings multiples
The corporate market is crystallising with properties typically changing hands for in excess of £2.5 million for quality 18 hole courses. This typically represents a multiple of between eight and ten times EBITDA. But beneath this is another stratum of purchasers, willing to pay between £1 million and £2.5 million and expecting multipliers on good secondary properties of between seven and nine times EBITDA.
We are seeing the emergence of other smaller groups making significant acquisitions recently. For instance, Burhill Estates bought Abbey Hill, Milton Keynes and Wycombe Heights, High Wycombe from the brewer Greene King for £3.2 million. Similarly, AIM-quoted Golf Club Holdings raised £30 million last year and emerged with a full Stock Exchange listing as Crown Sports. The company held a portfolio of seven clubs and it has subsequently bought Broke Hill in Kent. It has also recently acquired Dragons Health and Fitness and Train Station.
Property Golf & Finance bought Horton Park near Chessington in Surrey for around £3 million, and is rumoured to have more deals in the pipeline. Similarly Etchinghill Golf bought Austin Lodge Golf Course, Kent to bring its portfolio to three properties.
Other new entrants are still emerging. Leisure Links International has acquired Test Valley in Hampshire and is seeking other opportunities. And co founder of Auto Trader Paul Gibbons’ Leaderboard Golf has added the Faldo-designed Chart Hills in Kent for over £4 million to Sandford Springs and is rumoured to be on the look out for more property.
We expect to see an increase in merger and acquisitions activity as these smaller operators attempt to grow through corporate deals. Clubhaus and American Golf have already demonstrated that there are benefits in operating larger portfolios, by being able to invest in quality management, buying in bulk and offering members the opportunity to play a number of other courses.
However the private purchaser is not totally out of the market. The landmark deal in this sector has been the £8.5 million purchase of the East Sussex National complex near East Grinstead by a private individual. Messenger Leisure, owned by Eddie Shah, founder of the Today newspaper, has sold The Essex Golf and Country Club to Clubhaus and reinvested the proceeds in The Wiltshire, where he has planning permission to develop a hotel.
It is important to recognise that private purchasers of golf clubs are not usually the much maligned’lifestyle purchasers’. They tend to be serious businessmen who recognise that golf clubs offer a rare combination of a cash-generating business underpinned by property assets. Other recent examples in this category include the sale of Fernfell Golf and Country Club, Cranleigh for £2.5 million in 2000 and Long Sutton Golf Club, Somerset for £1.1m in 2001. Before Christmas 2001, the picturesque Rye Hill Golf Club, Oxfordshire was purchased by Executive Sports & Leisure (owners of Cranbrook Golf Club, Kent). The guide price was £1.95m to include an exciting planning consent for 18 holiday units.
Development activity still subdued
But while the investment market has been thriving, new development activity is still subdued. American Golf is one of the few to have developed new facilities recently with a useful addition to the original course at Pyrford, Surrey and the construction of an exciting 36-hole project near Basingstoke. Only in prime locations, typically around the M25, can the cost of constructing a premium-grade course be justified, and even there, developers are looking to use schemes such as incorporating landfill into their earthworks to help reduce construction costs.
In this sense there is now less prospect of a renewed oversupply of golf courses, which will underpin the confidence of investment buyers.