A private equity paradise in Vail

The Colorado mountain resort has been the setting for a number of private equity deals, including deals led by KKR and Apollo. By Paul Fruchbom.

The Colorado town of Vail, home to the largest single ski mountain in North America, is also home to a surprising number of private equity stories—many of them involving KKR co-founder and part-time Vail resident Henry Kravis.

After all, Kravis spent his 1987 Thanksgiving weekend in Vail while the rest of Wall Street was caught up in the frenzy of the RJR Nabisco auction. Kravis’ disappearing act in the Colorado Rockies, of course, lulled his competitors into a false sense of security, laying the groundwork for KKR’s stunning comeback and the $31 billion (€24 billion) acquisition of the tobacco and food conglomerate.

Kravis: ski bunny

The slopes of Vail were also the setting, literally, for another infamous KKR deal: the $1.3 billion sale of six TV stations from Storer Communications, a KKR portfolio company, to George Gillett, the owner of the Vail and Beaver Creek ski resorts. (The deal was reportedly made while Kravis and Gillett were skiing together.) Though KKR made hundreds of millions of dollars from their initial investment in Storer, the buyout firm rolled over approximately $100 million into the new Gillett-owned entity, SCI TV, which eventually filed for bankruptcy, along with the rest of Gillett’s vast holdings. Apollo Management acquired the Vail ski resort out of Chapter 11.

Given the lackluster performance of both SCI and RJR Nabisco, Kravis may not have fond memories of his business dealings on the ski slopes. But then again, Vail is also where he met Mike Shannon, the young chief executive officer of Vail and a fellow board member of the Vail Valley Foundation. In 1992, the duo, along with Larry Lichliter, formed KSL Recreation—K for KKR, S for Shannon and L for Lichliter—to focus on investments primarily in the high-end resort and leisure sector.

According to Shannon, KSL Recreation made a total of 15 investments over the

Shannon: from the slopes to the golf course

next decade, including acquisitions of the Hotel del Coronado near San Diego, the Doral Golf Resort & Spa near Miami and the La Quinta Resort and Spa near Palm Springs. Through three different vintage funds, KKR provided $524 million of equity for the acquisitions; thus far, the 13 investments that have been realized have generated a return of five times their initial equity.

Following the sale of KSL Recreation in 2004, Shannon formed KSL Capital Partners, a Denver, Colorado-based private equity real estate firm. Just last month, the new firm closed its first standalone private equity fund, raising more than $1 billion.

Even though Shannon is now on his own, a few KKR partners are investors in the new fund. And he and Kravis still have a soft spot in their heart for the mountain that brought them together. In fact, in 2004, the duo reportedly made a bid, albeit unsuccessful, to acquire the ski resort.