Two leading destination clubs merged today, forming the third largest player in the industry. Quintess and Dream Catcher Retreats, each with over 100 members, announced a merger of their two luxury clubs and portfolio of homes.

More Similar Than Different

The two clubs are more similar than different, as seen in the comparison chart below. We spoke with Quintess CEO and co-founder Pete Estler (photo, right; courtesy Quintess) about the transaction, which completed today. Over 140 members dialed in to a “Wall Street-style” conference call to hear details about the merger and ask questions. According to Estler, members appreciated the synergy of the deal and understood what he described as a scenario where “1 plus 1 equals 3.”

Over the next 60 days, the two firms will function independently while the clubs “integrate their websites, hosts, and vaction planning,” explained Estler. On November 1, the new entity will launch, hopefully dropping the tagline from the awkward combination of their two brands: “Quintess – Catch the Dream.”

The new Quintess will continue to offer 100% refundable deposit for the first year and 80% thereafter. The refundable portion will be used to acquire assets, maintaining each club’s model of leasing less than 20% of their portfolio. Estler said, in some cases, one club will be able to eliminate temporary leases since the other club has a home under development in the same destination. He explained leasing typically occurs in “foreign countries with onerous tax laws” that make it costly to own the home.

We asked Estler about the impact to Dream Catcher members and prospects. Dream Catcher members will be grandfathered in at the membership deposit they paid when joining, which is currently $20,000 less than Quintess’ membership deposit. Estler pointed out that Quintess started their club with a $300,000 deposit and have since increased to $345,000 as the club grew beyond the century-member milestone.

Consumers who have been in discussion with Dream Catcher membership directors could sign up at the $325,000 deposit until today, when the joint clubs enacted price parity in their membership fees.

Third Largest Destination Club

The merger of Quintess and Dream Catcher creates the third largest destination club by members. Industry leader Exclusive Resorts is 10 times as large and growing rapidly. Private Escapes, with 300 members, recently launched its third club (Pinnacle) to compete in the luxury segment.

In total, the combined entity reports over $110 million in assets, strong security for the refundable portion of membership deposits. In conjunction with the two firms’ commitment to fiscal transparency, “Quintess 2.0” is making the right moves to assure consumers the combined entity has a sound business model and can avoid the financial troubles of industry pioneer Tanner & Haley.

Helium Report Perspective

The merger of these two destination clubs was obviously in the works prior to the bankrupty filing by Tanner & Haley in late July. We’re not surprised that two up-and-coming destination clubs decided the combination of their teams yielded a stronger club. Given Exclusive Resorts’ continued dominance in member sales, we wonder if the new Quintess will raise additional capital to help battle the industry giant.

As we stated in Michael Corkery’s article in The Wall Street Journal (subscription required), Helium Report expects to see more consolidation in the destination club industry. Clubs with 25-50 members will have an increasingly difficult time selling against the “Big 3” (Exclusive Resorts, Private Escapes, and Quintess) who hold nearly 70% of the market with a combined 3,000 of the estimated 4,500 members.

UPDATE (9/1/06): The Wall Street Journal article was edited for length in today’s print edition. The original piece, published online yesterday, concluded with the following two paragraphs:

The merger makes the company one of the largest of the roughly 20 destination clubs.

Jamie Cheng, a co-founder of the Helium Report, a Web site which reviews luxury services, says larger, more established clubs may have an advantage. “Scale matters,” Mr. Cheng said. “It provides a sense of security for customers that the club has a solid base of assets and the financial resources to refund membership deposits.” He added that it’s possible there could be consolidation among other clubs.

We’ve posted the text here since we referenced our statement yesterday, but the online version of the article has been shortened to match the print version.

The Denver Business Journal also covered the story here. Both Quintess and Dream Catcher Retreats are headquartered in Colorado.