Last week, Quintess announced a partnership with Leading Hotels of the World along with its second acquisition in an exclusive interview with Helium Report. We spoke with Paul McManus, CEO of Leading Hotels of the World to hear his perspective on his company’s second foray into the destination club industry.

Pairing Luxury Service and Luxury Accommodations

McManus (photo, right) shared Quintess executive Ben Addom’s enthusiasm for the partnership. “It’s the coming together of two companies that have a similar purpose and sensitivity to quality,” said McManus. He described the new entity as “the only global [destination] club in existence” and noted the two firms’ “shared common standard of service and luxury.”

Leading Hotels of the World represents over 440 luxury hotels and resorts worldwide. McManus says the product line is predominantly European, but the largest base of customers is in North America. According to McManus, the company has no plans to market the Quintess product on-site at its hotels.

He believes the destination club concept is a “natural extension for [Leading Hotels of the World] customers.” The firm brings a global presence and a diverse portfolio of real estate assets where Quintess can develop “residence components.” McManus noted both Four Seasons and Ritz-Carlton have residential components in their portfolio of hotel properties, but argues Leading Hotels of the World boasts a broader global brand and more diverse product.

McManus provided Gleneagles, Scotland as an example of “a ‘Grand Dame’ facility that lends itself well to suite programs and has property available for building.” He expects properties in Switzerland, Germany, and Italy will be attractive to Quintess for future expansion.

From Cendant to Quintess

In August 2005, Leading Hotels of the World partnered with Cendant to launch Leading Residences of the World. The destination club entered the market with a 25 luxury homes and an industry-first insurance policy for membership deposits.

Rather than acquire homes while signing up new members, the club opted to invest in a real estate portfolio to accommodate roughly 150 future members. The aggressive strategy was designed to eliminate the common “chicken-and-egg” dilemma faced by new destination clubs. Potential members are often leery of joining in the charter stages before a sufficient base of homes has been acquired; Leading Residences of the World’s home strategy pre-empted that issue.

Helium Report noted this fall that Leading Residences of the World was no longer accepting new memberships from its website. McManus explained, “The venture got caught up in some of the issues Cendant had with its own business structure. The unit that owned the venture was sold to Blackstone Group and the stall had nothing to do with the [Leading Hotels of the World] brand.” Private equity firm Blackstone Group acquired the Travelport unit of Cendant for $4.5 billion in August.

McManus said 38 of 40 Leading Residences of the World members opted to transfer their memberships to Quintess. The other two members had not finalized their decision at the time of the interview, but had the opportunity to receive an 80% refund of their membership deposit as per their original contract. “The intent on both sides was to treat everyone fairly,” he explained.

Helium Report Perspective

With six mergers and acquisitions in the destination club industry this year, prospective members now need to add another due diligence question to their list: “What happens to my membership deposit in a change of control?”

Quintess’ partnership with Leading Hotels of the World and the acquisition of both homes and members brings the club significantly closer to critical mass. In past interviews, Addoms has cited a break-even figure of about 350 members. The acquisition of both Dream Catcher Retreats and Leading Residences of the World takes Quintess from 100 members in early 2006 to about 300 by year-end.

Early members of acquired clubs are presented with a reasonable case to join new entities: Continue to enjoy the benefits of membership with the added financial security of a larger club with a greater asset base. Quintess’ savvy acquisitions should prove rewarding to all parties.

Recent members, however, may find it disconcerting to join one club only to find out their only choices in a merger are to resign at a 20% loss or accept the terms of the new club. Destination clubs are converging around the model of an 80% membership deposit; make sure to ask if there’s a “grace period” for the first few months or even first year of your membership. For more details, request our Decision Guide to Destination Clubs and review more than 50 due diligence questions to consider when deciding on a club.