Business Opinion: Some day, presumably in the not too distant future, they will discover oil under the fairways of Wentworth Golf Club in Surrey - or, more likely, the largest undeveloped sand and gravel deposit in the south of England.
Either way, the reputation of Seán Quinn and the Quinn Group for astute investing will be upheld. Without such an occurrence, they will run the risk of being shown to have overpaid for Wentworth, assuming the £122 million (€179 million) bid they tabled last week is not rejected or bettered, which seems unlikely.
The Quinn Group, which initially offered £87.5 million for Wentworth, had been expected to fold its tent after the majority shareholder - property group Chelsfield - accepted a £110 million bid from retail entrepreneur Richard Caring with a £120 million lock out. Instead, it came back last Wednesday with a £122 million bid and pushed the lock out up to £135 million.
It seems like a very full price for several reasons, not least the 40 per cent premium it represents on Quinn's opening offer.
The most recently filed accounts for Wentworth Group Holdings are for 2003. They show turnover up from £17.1 million to £17.6 million. Operating profits showed a more dramatic improvement, rising from £5.4 million to just under £6 million. But this was pretty much offset by a rise in the annual interest bill from £170,000 to £716,000 which was explained by a jump in debt from £40,000 to £17.7 million.
This related to a loan of just under £20 million to finance a similar-sized dividend payment, which pushed net assets down to £21 million from £38 million. The fixed assets, which comprise the freehold land, facilities and buildings are valued at just under £42 million.
On this basis, Quinn Group is paying around 20 times operating profits and six times net assets. These sorts of multiples are at the top end of what might be paid for pure hotel groups and are well ahead of the multiple of eight to 10 times profits by which pure leisure businesses are valued.
On the plus side, the Quinn Group would have had access to the current year's figures and sources close to the group say operating profit is now near £8 million. The business is also cash generative, throwing off over £3 million last year despite the hike in the interest bill.
Sources close to Quinn also point out that the group is in a position to drive revenue at Wentworth from other parts of its business. This tactic has played a part in the success of the group's flagship hotel, the Slieve Russell in Cavan. But ultimately, there is a limit to the number of insurance broker junkets Quinn Direct will be able to send Wentworth's way.
Whether or not you think Quinn Group is in danger of overpaying for Wentworth really comes down to what value you put on the goodwill attached to the property. It is one of the world's best-known golf courses, and charges green fees to match. It is home to two major championships and many of the most famous names in British golf have homes overlooking its three courses, which are within easy reach of London.
But it still seems that Seán Quinn's emotions may have got the better of him and he may have contracted a dose of bid fever.
One would be loath, however, to say that Mr Quinn has made a mistake, as his stock-in-trade is making money where others think there is no more to be be had - cement, insurance and glass making in Ireland being the obvious examples.
His people point out that assets like Wentworth do not come along very often and, when they do, you have to pay up. They point out the club last changed hands in 1988 for £26 million and it has appreciated by 270 per cent since then.
There are not many asset classes that can match that, but there is more than a little self deception being practised here as its only Quinn Group's willingness to pay £122 million that has generated this return.
For this sort of return to be repeated would require a few more cycles in the property market and another Seán Quinn to come along. The first is a certainty, the second pretty unlikely.
jmcmanus@irish-times.ie
