Ironbridge Capital


		Auckland Central Backpackers 1. Summary of the Deal On 21 June 2004, Ironbridge led the NZ$50m management buy out of ACB Holdings Limited ("ACB") from a group of private investors. ACB is the leading operator of backpacker complexes in New Zealand with over 1,200 beds across four complexes in Auckland, Queenstown, Paihia and Rotorua. ACB also provides a travel agency, internet cafe and a bar in each complex which are amongst the busiest in the towns in which they are located. The backpacker market in New Zealand is forecast to continue to grow at 12% pa and ACB's strategy is to roll out its successful format across New Zealand and ultimately, Australia and the South Pacific. The transaction was funded by Ironbridge and management, with debt provided by the National Bank of New Zealand. back to top 2. Background In New Zealand tourism is growing strongly and the country is a leading backpacker destination. This growth is driven by an increasing number of young people taking time out, assisted by cheaper "round the world" airfares. Backpacking is now being adopted by more nationalities, once traditionally a UK/Irish pastime, and growth has been fueled by New Zealand's recent high profile and its reputation for low cost, safe travel. New Zealand was voted the top backpacker destination in both 2003 and 2004 by Lonely Planet, the largest publisher of backpacker guidebooks. Backpacking now encompasses people of all ages, with varying levels of spending power, creating a demand for clean, secure, modern hostels which still facilitate social interaction. Backpackers will pay a premium for this type of accommodation. ACB was Australasia's first chain of large backpacker complexes. Each complex has the critical mass to offer ancillary services and is able to offer low cost, clean, high quality, safe accommodation at competitive prices. Management believes that an attractive opportunity exists to develop a network of high quality backpacker complexes across New Zealand. ACB's scale gives it leverage with domestic and international transport providers and wholesalers, thereby providing volume as the chain is expanded. Ironbridge conducted extensive due diligence into the legal and financial background of ACB. An in depth assessment of the backpacker industry and key trends was undertaken by Hub Consultants, a specialist in the budget accommodation sector. Ironbridge was assisted in the execution of this transaction by New Zealand Operational Partner, Kerry McIntosh. back to top 3. The Business ACB has a large, 514 bed, "gateway" facility in Auckland, which gives it access to customers for its other lodges in Rotorua (145 beds), and Paihia (138 beds) on New Zealand's North Island and a new 396 bed complex in Queenstown, on the South Island. Revenue is generated from accommodation, bars, internet cafes and from the commission generated from the sale of travel packages and activities throughout New Zealand. ACB's strategic plan involves the development of a network of 8-10 full service complexes across New Zealand. The short to medium term growth opportunities are: Opening of Queenstown This is the adventure tourism capital of New Zealand. ACB has recently opened a 396 bed purpose built facility in the town centre, which is markedly superior to any other offering. This is the first facility which has been purpose built for and then leased to ACB, which reflects ACB's increasing size and creditworthiness. It is anticipated that most of ACB's new hostels will now be leased, thereby generating higher returns on equity. Expansion of Existing Facilities ACB intends to expand the capacity of its existing facilities. Two additional floors will be fitted out in Auckland (increasing capacity to 730 beds) for limited incremental cost, Rotorua will undergo a major redevelopment (doubling in size to 300 beds) and Paihia will have its bar and communal areas expanded. Taupo ACB has entered into an agreement to lease a purpose built 300 bed facility in Taupo, which is expected to open in early 2005. New Locations ACB has also identified several other sites in various destinations around New Zealand and is planning to open at least two further complexes during 2005/06. back to top 4. The Management Team *Campbell Shepherd, Managing Director, has been in tourism management since 1991. He joined ACB in 1994 and has been instrumental in its success to date. Campbell has developed a strong operational team to operate the existing facilities and has built a stable of potential managers that will be able to step into new facilities as they are developed. ACB will be seeking to build the team with the employment of key mangers in the areas of marketing, project management and human resources. back to top 5. Transaction Rationale Leading market position* ACB is the leading "for profit" chain of backpacker complexes, with around 7% of total beds in New Zealand. In each of the local markets in which ACB operates, this rises to between 25% and 35%. *Rapidly growing market* Growth is driven by an increasing number of young people taking time out and by New Zealand's reputation for safe and low cost travel. *Large but fragmented industry* The backpacker market in New Zealand is large (NZ$1.3 billion in 2003) with approximately 20% spent on accommodation and another 50% on travel, food and drink. The market is still very fragmented; this should offer good opportunities for market share gains at the expense of smaller operators. *Good asset backing* ACB has tangible operating assets of around NZ$30m, largely made up of freehold property assets. *Strong management* Campbell Shepherd has been Managing Director of ACB since 1994 and has been instrumental in its success to date. He is widely regarded as the leading operator of backpacker facilities in New Zealand. *Internal growth opportunities* ACB has several projects underway to expand its existing operations, at a low marginal cost, to capitalise on demand for beds, bars and for smaller ensuite rooms. The short to medium term "roll out" strategy should significantly increase EBITDA. *Good exit opportunities* We believe ACB is an attractive IPO candidate and would also represent a strategic entry point into an important tourism market for an international acquirer. back to top