Ultimate Resort, the sixth largest destination club by member count, may rocket to second place after agreeing to acquire the assets of bankrupt Tanner & Haley in a $98 million transaction.

The 78-member luxury destination club is buying about 60 of the 67 residences owned by Tanner & Haley at a below-market value of approximately $1.6 million each. The homes are worth an estimated $2 to 3 million and expand Ultimate Resort’s current portfolio of 9 homes by nearly 12X.

According to a spokesperson for Tanner & Haley, the deal is conditional on at least 400 Tanner & Haley members joining Ultimate Resort under “special terms” that do not involve a new membership deposit. Tanner & Haley has 874 members amongst its three clubs – Legendary Retreats, Distinctive Retreats, and Private Retreats – all of whom became creditors when the industry pioneer filed for Chapter 11 bankruptcy protection in August.

Just last month, we spoke with Jim Tousignant, CEO of Ultimate Resort about his club’s recent growth, including a successful membership drive in September, a new website, and an industry-first warranty. Now, Tousignant and his team have bailed out their former competitor, bringing an end to the industry drama that started four months ago.

Tanner & Haley Bankruptcy

After changing its name from Abercrombie & Kent Destination Clubs to Tanner and Haley, the second-largest destination club at the time ended up filing for bankruptcy due to a flawed business model that leased rather than bought the majority of its homes. The failure left its 874 members as unsecured creditors and eventually resulted in the resignation of Rob McGrath, who founded the industry in 1998.

The bankruptcy filing revealed the club only owned 67 homes instead of the 200 mentioned in its portfolio. Costly leases combined with under-priced charter memberships were key factors driving the firm’s $64 million loss in 2005.

Industry Consolidations

Tousignant’s bold move is the latest in a string of consolidations that have occurred over the past few months. Quintess recently merged with Dream Catcher Retreats in a $62 million deal, the largest transaction at the time. Since then Portofino Club acquired Signature Destinations and Crescendo joined with Destinations Private Resorts. Other mergers are rumored to be in the works.

The new Ultimate Resort, with anywhere from 500 to almost 1,000 members depending on how many opt to join, is still over-shadowed by industry giant Exclusive Resorts. Yesterday, Helium Report predicted the 2,400+ member club would announce $1 billion in real estate assets by year-end. Tousignant adds nearly $100 million of luxury homes to his club’s portfolio with this acquisition, giving Ultimate Resort a solid foundation for continued expansion.

Click here to download the official press release about the transaction (PDF, 20kb). We’ll post additional stories after we connect with Jim Tousignant and learn more about this deal and what it means for current and prospective members.

UPDATE (11/22/06): If you a subscriber to The Wall Street Journal, click here to read their story in Wednesday’s edition, page D1.