Impending Acquisition Of Diamond Resorts Spells Changes For Timeshare/Leisure Sector

Diamond Resorts International Inc DRII witnessed a 24 percent jump in its share price following the news that it had entered into an agreement to be acquired by Apollo Global Management LLC APO for $30.25 per share or a total of about $2.2 billion.

Goldman Sachs’ Steven Kent downgraded the rating on Diamond Resorts from Buy to Neutral, with a price target of $32.

Removing the stock from the Americas Buy List, Kent mentioned that it now has less upside.

Positive For Timeshare

The analyst believes the acquisition news has broader positive implications for the timeshare sector, saying that the announcement indicates that private equity is now moving toward direct ownership.

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“The bear case on timeshare has been that the regulators would take a closer look at the financing of loans and timeshare selling practices. Seeing private equity announce its intention to acquire DRII could suggest that these potential issues have been examined,” Kent mentioned.

The analyst believes although the industry is heavily regulated, the bear case is overdone.

Continued Strength

In addition, Kent continues to see strength across all of leisure travel, with the U.S. consumer having shifted spend from products and goods to experiences and fun.

“Technology may disrupt how travel is booked, but it will not replace it,” the analyst stated.