BIG MOUNTAIN RESORT

Mergers & acquisitions Medium difficulty

Leisure & Tourism Interviewer-led case

The case discusses an acquisition opportunity in the mountain leisure & tourism industry.

It tests all dimensions of the case interview scorecard and includes a challenging numerical question.

Problem definition

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Our client is Many Mountains, a company that owns several mountain resorts throughout North America

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and Europe. It has specialized in taking over resorts, investing in improvements or expansions, and then

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lowering prices for season’s passes in an effort to increase the revenue per skier-day. The company has
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performed exceptionally well over the last several years and has stockpiled a significant amount of cash
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and access to financing.

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Many Mountains is considering acquiring another resort in North America called Big Mountain. Big
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Mountain Resort has typically been regarded as the number one in the world thanks to its fantastic snow
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conditions, unrivaled terrain size and variety, and diversity of offerings to meet the needs of everybody in
a family.
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For the last decade Big Mountain was owned by a private equity company who is now looking to exit
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their investment and return investors’ money, at an estimated minimum sales price of $500 million.

The CEO of Many Mountains is asking whether they should acquire Big Mountain Resort and, if
so, how much should they offer?
Question 1 (Structuring)

How would you structure your approach to the problem?

Additional information

If asked, share the following information:

Target – Big Mountain resort:

• Big Mountain generates revenue from single ticket and season pass sales, and other non-
mountain sources (e.g., gear sales)
• The mountain offers downhill skiing and snowboarding, snowshoeing, cross-country skiing,

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lessons, and world-class restaurants

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• The resort is located in a small town whose economy is driven by tourism and which is an hour

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and a half away from a major international airport

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• The town has hotels and restaurants to support 20,000 people, which is near capacity in
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January – March
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• The resort has always focused on the best customer and tourist experience
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Acquirer – the Client, Many Mountains:

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• Owns 12 different ski resorts; the majority are in North America, but they recently acquired one
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• All of the resorts operate on a similar model; winter-sport focused with the highest quality service
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• Client’s long-term goal is to grow its scale and increase profitability (they have grown at least
10% annually for the past decade)
• The company accumulated financing of $1 billion

Possible answer

1. Standalone value of Big Mountain?

a. Current revenue and expected growth (incl. impact of climate change)
b. Current and expected costs
c. Expected capital investments (e.g., lifts to replace)

2. Potential synergies of the acquisition?

a. Revenue synergies (cross-selling, increased skier-days)
b. Cost synergies (savings in marketing, organizational rationalization, etc.)
3. Capabilities and risks involved?
a. Culture and organization (working norms, performance measures, org. structure implications)
b. Regulations (anti-trust, health & safety)
c. Strategic factors (strategic rationale for acquisition, seller’s urgency to sell)

Question 2 (Judgement and insights)

Big Mountain has shared this exhibit with the information about monthly average skier-days
(share Exhibit 1)

What can you conclude from this information?

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Possible answer

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Key takeaways:
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• There is extreme seasonality of the business, with zero skier-days from June through to October
• With likely high fixed costs, this is a difficult business to profit from under the current model, which
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would affect the price Many Mountains would pay

• If the mountain is able to draw so many people during the winter, presumably there are ways to
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invest and build a year-round business to get a return on Many Mountains’ investment
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Next steps:
• Pair the skier-days figures with revenue per skier-day and costs to calculate profits of Big Mountain
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Resort
• Evaluate potential summer-months development opportunities to generate new revenue and value
them, as well as other growth and cost-saving opportunities
 Skier Days (In Thousands)
Exhibit 1

100
150
200
250
300
350
400

0
50
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At Big Mountain Resort

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Monthly Average Skier Days

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d.
Question 3 (Creativity)

What are the possible ideas for generating a summer revenue stream at Big Mountain Resort?

Possible answer

1. Using existing assets – mountain, lifts, restaurants, etc.

a. Hiking trails
b. Mountain biking trails
c. Adventure expeditions
d. Wildlife excursions
e. Mountaintop fine dining

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2. Building new assets
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a. Spa resort
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b. Festival destination
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c. Athletics destination – mountaintop marathon, ironman, etc.

d. Casino
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Overall there are a lot of opportunities to expand Big Mountain’s business beyond the current scope
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provided the company has necessary capabilities.

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Question 4 (Numeracy)

What is the value of Big Mountain’s business?

Additional information

The candidate should proactively suggest determining the standalone value of Big Mountain Resorts and
of the possible synergies. If asked, share the following information:
• Revenue per skier-day is $150
• Costs are all fixed and less the annual overhead equal to $200m
• There is no foreseeable capital expenditure required to maintain current revenue
• Discount rate is 20%

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• Growth is flat

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After the standalone value of Big Mountain is determined, share that the CEO of Many Mountains is
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really interested in building a summer operation on the mountain – specifically, a mountain biking park
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using the existing chairlifts and runs, and hiking and sightseeing trails. How much would that increase
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the value of Big Mountains Resort?

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Let the candidate ask for the following information, but share it even if the candidate does not ask:
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• Incremental profit:
— Developing the four summer months with a mountain biking park and hiking trails would result in
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5,000 users per day

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— Average revenue per user-day would be $150

— Overhead costs would increase by $50m per year
• Cost synergies:
— $10m in annual cost savings
• Other costs:
— Building the summer aspects of the mountain would require a $50m investment
Possible answer

1. Standalone value of Big Mountain

Value = Profit / Discount rate

Profit = Revenue – Costs
Revenue = Revenue per skier day * Number of skier days =
$150 * 1.8m (from the chart) = $270m
Profit = $270m - $200m = $70m
Value = $70m / 20% = $350m

Standalone value of Big Mountain Resort is $350m, which is less than the asking price. At this stage, it
does not look like Many Mountains should pay $500m on the basis of its standalone value.

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There must be significant synergies (worth over $150 million) to financially justify the asking price.

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We now have to assess available synergies and evaluate capabilities and risks of the potential
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acquisition.
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2. Additional value resulting from summer operations

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Additional value = Value of additional profit + Value of cost synergies - Investment

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Value of additional profit = New profit / Discount rate =

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(New revenue – New cost) / Discount rate =

(Revenue per user-day * Number of users per day * Number of days – New costs) / Discount rate =
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($150 * 5,000 * 120 – $50m) / 20% = ($90m - $50m) / 20% = $200m

Value of cost synergies = Cost savings / Discount rate =

$10m / 20% = $50m

3. Additional value resulting from summer operations = $200m + $50m – $50m = $200m

With $200 million additional value resulting from summer operations, the total value of Big Mountain
Resort to Many Mountains will be $550 million, which makes the $500 million ask worthwhile. However,
there are still risks, especially around capturing this opportunity.

As a next step, the forecasted additional value need to be tested with scenarios and benchmarks from
comparable resorts. Also, qualitative factors (culture & organization, regulation, and strategic rationale)
need to be evaluated
Question 5 (Synthesis)

The CEO of Many Mountains is looking for a recommendation based on your findings so far.
Would you recommend acquiring Big Mountain Resort and if so, what price would you offer?

Possible answer

You have asked us whether Many Mountains should acquire Big Mountains and if so, what price they
should offer.

Based on current findings, there is a business case to go ahead with the acquisition at a price of $500
million.
• The total value of Big Mountain Resort to Many Mountains is $550 million, which is higher than the

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asking price
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• The client has sufficient cash to cover the asking price
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• The acquisition will help Many Mountains to grow its scale in North America while not compromising
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on quality (given high quality standards at both the target and the acquirer)
• There are a lot of opportunities to expand Big Mountain’s business beyond the current scope which
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will be in line with Many Mountain’s long-term strategy to increase profitability

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However, we want to stress that this business case relies on generating $90M of incremental revenue
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from new summer operations.

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As next steps, we would like to confirm that the incremental revenue and cost synergies can be
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captured, with scenarios and benchmarks from comparable resorts and looking at Big Mountain’s
capabilities to expand its business to summer months.

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