Just About
Everything in the World You Would Ever Want to Know
About Affinity Group’s Acquisition of Camping
World
On
April 2, 1997, Affinity Group, Inc. (AGI), acquired
the common stock of Camping World, Inc. from
principal shareholders David B. Garvin, Thomas A.
Donnelly, William L. Johnson, Stephen L. Snodgrass,
Murray Coker, Dean Ewing, James Schumm, Rick Matar,
John Holland and Ron Chance, for approximately $89
million, including debt repayment upon acquisition.
Also, certain Camping World executives entered into
non-competition and consulting agreements pursuant to
which AGI paid $19 million at closing. In addition,
at closing AGI and certain members of Camping World
management entered into incentive compensation
agreements pursuant to which an additional $15
million will be paid subsequent to the closing of
which $1 million is payable annually on the first
four anniversaries after the closing date with the
balance, $11 million, due on the fifth anniversary of
the closing date.
As
a result of the acquisition, David B. Garvin,
chairman and founder of Camping World, and Thomas A.
Donnelly, president of Camping World, have joined
AGI’s parent company, Affinity Group Holding,
Inc., board of directors.
The
Camping World acquisition was financed through a $130
million bond offering by Affinity Group Holdings,
Inc.
Including
the Camping World acquisition, AGI now has over 1.7
million paying members enrolled in its recreational
affinity clubs, including approximately 465,000
Camping World President’s Club members, and will
have over 3.9 million names in its proprietary
database targeted to the recreational activities of
AGI’s club members, including approximately a
million new names from Camping World.
AGI’s Benefits of
Acquiring
AGI’s
management believes that the acquisition of Camping
World will further its business strategy and enhance
its competitive prospects by providing the following
benefits:
1.
Opportunities to cross sell club memberships between
AGIÕs Good Sam Club and Camping World’s
President’s Club through both Camping
World’s supercenters and catalog operations as
well as AGI’s direct mail operations.
2.
Access to Camping World’s retail and mail order
catalog distribution channels to increase the
penetration of AGI’s products and services, such
as its emergency road service program and the
recently introduced extended vehicle warranty
program, and access to Camping World’s RV
merchandise which will be marketed to AGI's Good Sam
Club members.
3.
Opportunities to reduce membership, products and
services solicitation costs resulting from AGI’s
ability to:
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a. Market through
Camp-ing World’s retail and catalog
distribution channels,
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b. Capitalize on the
overlap of the Good Sam Club and the
President’s Club memberships, and
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c. Consolidate the
administrative support for certain products
and services.
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AGI
believes that these opportunities will enable it to
eliminate workforce redundancies and to reduce
printing, paper, fulfillment and mailing costs.
AGI’s
business strategy is to:
1.
enhance the enrollment of its clubs through internal
growth and acquisitions;
2.
increase the sales of its products and services by
marketing to club members through the most effective
distribution channels and by developing and enhancing
its product and service offerings; and
3.
expand the circulation of its publications by
introducing new magazines and acquiring publications
which are complementary to the company's recreational
market niches.
The Cast
Stephen
Adams has been chairman of Affinity Group
Holding, Inc., since its inception and of AGI since
its acquisition in December, 1988. Since the
1970’s, Adams has served as chairman of
privately-owned banking, bottling, publishing,
outdoor advertising, television and radio companies
in which he holds a controlling ownership interest.
Adams is also chairman and the controlling
shareholder of Adams Outdoor Advertising, Inc., the
managing general partner of Adams Out-door
Advertising Limited Partnership.
In
1992, Radio Group Corporation and Adams Radio of
Charlotte, Inc., entities in which Stephen Adams was
the chairman and controlling shareholder, consented
to the appointment of receivers to effect a transfer
of control of the radio operations of such entities
as part of a consensual restructuring of the debt of
such entities. In 1993, Adams Outdoor of Atlanta,
Inc. (“Adams Atlanta”), a corporation
controlled by Stephen Adams, entered into a
consensual foreclosure agreement with its lenders.
Adams Atlanta was acquired in 1988 in a leveraged
transaction, and ownership was transferred to its
secured lender in July 1993. In addition, in July
1993, a party whose claim was being disputed filed an
involuntary bankruptcy petition against Adams
Atlanta. The petition was withdrawn and dismissed
three days after the filing.
Joe
McAdams has been president and CEO of AGI
since its inception. Prior to that and since December
1988, McAdams was president of Adams Publishing
Corporation, a newspaper and magazine publishing
company controlled by Adams. From October, 1987,
through November, 1988, McAdams was president and
publisher of Southern California Publishing Co.
Michael
Schneider has been chief operating officer
of AGI since 1996. Prior to that Schneider served as
senior vice president and general counsel of AGI and
was responsible for administrative areas, development
of new corporate ventures, portions of the RV
publication business and the advertising and sales
departments. Schneider has held a variety of senior
management positions in TL Enterprises’
publication business since 1977.
David
B. Garvin founded Camping World in 1966 and
served as president of Camping World from 1966 to
1986 and as its chairman of the board of directors
since 1986.
Thomas
A. Donnelly has served as president of
Camping World since 1986 and as its CEO since 1988.
Donnelly joined Camping World in 1971 and served in
various management positions until 1984, at which
time he was promoted to senior vice president,
operations.
Donnelly
and Garvin are first cousins.
What is Affinity Group, Inc.?
AGI
is a wholly-owned subsidiary of Affinity Group
Holding, Inc., a privately-held company. Stephen
Adams, the chairman of AGI, owns approximately 96
percent of the outstanding shares of Affinity Group
Holding, Inc.
AGI
describes itself as a member-based direct marketing
organization primarily engaged in selling club
memberships to selected recreational affinity groups
principally comprised of recreational vehicle owners,
campers, outdoor vacationers and, to a lesser extent,
golfers. AGI’s club members form a receptive
audience to which it sells products and services,
merchandise and publications targeted to the
recreational interests of such members. AGI’s
three principal lines of business are:
1.
Club memberships and related products, services and
club magazines
2.
Specialty retail merchandise distributed primarily
through retail supercenters and mail order catalogs
3.
Subscription magazines and other publications
including directories.
For
the year ended December 31, 1996, AGI generated
revenues of $140.0 million.
AGI’s Programs
Approximately
1.3 million members are currently enrolled in
AGI’s clubs and AGI maintains a proprietary
mailing list. AGI believes that its average annual
club renewal rate of approximately 72 percent during
the period 1992 to 1996 compares favorably with other
for-profit subscription-based businesses.
AGI’s
publication business provides an additional revenue
source and serves as the primary vehicle to promote
its membership clubs and to market its products and
services.
AGI’s
club membership revenues, which include revenues from
club dues, products, services and advertising in club
magazines, were $98.9 million in 1996. AGI’s
clubs consist of the Good Sam Club and Coast to Coast
clubs, which are targeted to RV owners, campers and
outdoor vacationers, and the Golf Card club, which is
targeted to golf enthusiasts. Members of each club
pay dues, which varies by club, length of enrollment
and available club benefits.
Good
Sam Club membership provides discounts for overnight
stays at participating RV parks and campgrounds and
discounts on membership-sponsored products and
services.
Coast
to Coast membership provides reciprocal-use
privileges and discounts for overnight stays at
approximately 82 percent of the private RV resorts
nationwide and discounts on membership-sponsored
products and services.
AGI’s
club members provide a focused and receptive group of
customers to which it markets products and services.
The products and services either address special
needs arising from the activities of club members or
are generally appealing to consumers with demographic
characteristics similar to club members.
The
two most established programs marketed by AGI are its
emergency road service (ERS) and its vehicle
insurance program (VIP).
Other
products and services marketed by AGI include vehicle
financing, supplemental health and life insurance,
credit cards and the recently introduced extended
vehicle warranty program.
These
products and services are generally provided to club
members by third parties that pay AGI a marketing fee
and assume all fulfillment obligations and
underwriting risk.
AGI
is the leading publisher for the RV industry in the
United States and Canada. AGI’s revenues from
publishing operations were $41.1 million in 1996.
AGI’s monthly magazines, Trailer Life and
Motorhome, have a combined paid circulation exceeding
415,000 copies per issue. Distribution of AGIÕs
annual directories, the Trailer Life Campgrounds/RV
Parks and Service Directory and the Woodall
Campground Directory, approximated 320,000 and
284,000 copies, respectively, in 1996. In addition,
AGI publishes separate magazines for its membership
clubs, trade publications targeted to the RV
industry, specialty magazines targeted to motorcycle
enthusiasts and other special interest publications.
What is Camping World?
Camping
World is the only national specialty retailer of
merchandise and services for RV owners. For its
fiscal year ended September 30, 1996, Camping World
generated total revenues of $169.8 million. The 26
Camping World retail supercenters which are located
in 17 states, accounted for approximately 66 percent
of fiscal 1996 revenues while approximately 21
percent were derived from catalog sales and
approximately 13 percent were derived from fees or
non-merchandise revenues. Ap-proximately 86 percent
of Camping World’s revenues were derived from
sales to its President’s Club buying group.
AGI
believes that Camping World’s leading position
in the RV accessory industry results from a high
level of name recognition, an effective dual channel
distribution strategy and a commitment to offer a
broad selection of specialized RV products and
services at competitive prices combined with
technical assistance and on-site installation.
Overview of Camping World
Camping
World’s supercenters offer over 8,000 SKUs,
approximately 80 percent of which are not regularly
available in general merchandise stores. In addition,
general merchandise stores do not provide
installation or repair services for RV products.
Camping World also markets emergency road service and
vehicle insurance products similar to the products
offered by AGI. Camping World supercenters are
strategically located in areas where many RV owners
live or in proximity to destinations frequented by RV
users. Camping World’s supercenters are designed
to provide one-stop shopping by combining broad
product selection, technical assistance and on-site
installation services.
Camping
World’s principal marketing strategy is to
capitalize on its broad name recognition among RV
owners. Camping World solicits customers through mail
order catalogs, direct mail retail flyers,
advertisements in national and regional industry
publications, vendor coop advertising programs,
promotional events, President’s Club direct
mailings and personal solicitations and referrals.
The Catalog
Camping
World initiated its mail order operations in 1967.
Camping World currently has a proprietary mailing
list of approximately 1.7 million RV owners, all of
whom have made a purchase or requested a catalog from
Camping World within the prior 60 months. Camping
World maintains a database of these names, which
includes information such as order frequency, size of
order, date of most recent order and type of
merchandise purchased. Camping World analyzes its
database to determine those customers most likely to
order from Camping World’s catalogs. As a
result, Camping World is able to target catalog
mailings more effectively than direct marketers of
catalogs offering general merchandise. From fiscal
1992 to fiscal 1996, Camping World’s catalog
mailing response rate has increased from 4.1 percent
to 4.6 percent as a result of more effective target
marketing. Camping World continually expands its
proprietary mailing list through in-store
subscriptions and requests for catalogs in response
to advertisements in regional publications directed
to RV owners. In addition, Camping World rents
mailing lists of RV owners from third parties
including AGI.
During
fiscal 1996, Camping World distributed 9.1 million
catalogs, of which 7.6 million were mailed in 12
separate mailings, and the remaining 1.4 million
catalogs were distributed in supercenters, at
campgrounds, by request and as package inserts. In
fiscal 1996, Camping World processed over 420,000
catalog orders at an average net order size of $84,
excluding postage and handling charges. The average
net order size has increased over 15 percent since
fiscal 1992. Camping World distributes seven major
high quality, full color catalogs each year: master,
spring, fall, holiday, two sale editions and a
prospecting catalog. Camping World also distributes
specialty catalogs direc-ted to targeted customers in
order to develop market niches.
Camping
World’s mail order operations, located at its
headquarters in Bowling Green, Kentucky, offer
toll-free customer service seven days a week 24 hours
a day. Camping World has established a sales training
program for its customer service personnel and also
provides experienced technical advisors to answer
specific questions by telephone. Orders are usually
processed and shipped within 24 hours of receipt.
Camping
World’s mail order operations generate
significant revenues and enhance retail sales by
serving as the primary advertising vehicle for the
supercenters and by increasing Camping World’s
name recognition among RV owners nationwide. AGI
believes that Camping World has the leading share of
the mail order catalog segment for specialty RV
products. Camping World’s mail order catalog
sales complement its retail sales by targeting
customers with limited access to its retail
supercenters and by facilitating purchases of higher
turnover items by regular supercenter customers.
In
addition, Camping World recently unveiled an on line
version of its catalog on its web site
(www.campingworld.com) where consumers can order
products on line.
The President’s Club
Camping
World established its President’s Club in 1986
as a means of building customer loyalty and revenues.
President’s Club members pay a membership fee,
which varies with the length of membership, and
receive a 10 percent discount on merchandise
purchased from Camping World as well as special
mailings including newsletters and flyers offering
selected products and services at reduced prices. Of
the approximately 465,000 members of the
President’s Club, approximately 250,000 were
also Good Sam Club members. The average annual
renewal rate for the PresidentÕs Club for the five
year period ended September 30, 1996 was 60.7
percent.
In
fiscal 1996, President’s Club members accounted
for approximately 86.0 percent of Camping
World’s merchandise sales and service revenues.
The average order size was $124 for President’s
Club members as compared to $23 for non-club members.
Recently,
Camping World upgraded its point-of-sale system to
sell President’s Club memberships and renewals
at the check-out register and to capture names of
prospective club members.
The Supercenters
Camping
World’s supercenters generally range in size
from approximately 18,000 to 36,000 square feet.
Approxi-mately 40 percent of each supercenter is
devoted to a retail sales floor, a customer service
area, and a technical information counter; 40 percent
comprises the installation facility which contains 4
to 16 drive- through installation bays; and 20
percent is allocated to office and warehouse space.
Large parking areas provide sufficient space and
facilitate maneuvering of RVs. By combining broad
product selection, technical assistance and
installation and repair services, Camping
World’s supercenters provide one-stop shopping
for RV owners. Camping World maintains toll-free
telephone numbers for customers to schedule
installation and repair appointments. All
supercenters are open seven days a week.
Camping
World intends to continue the controlled, limited
expansion of its supercenter store network. Camping
World’s expansion strategy is based on a
comprehensive process which analyzes the sales trends
and travel patterns of existing and potential
customers as well as the sales patterns of RV
vehicles. Camping World researches the travel routes
used by RV owners and the location of camping areas
in order to ensure the convenient location of its
supercenters. Sales and shipment of new RVs together
with analysis of demographic data derived from its
customer database and mail order shipments and RV
ownership lists from other sources are used to
identify high concentrations of RV owners. Once an
area has been identified, Camping World surveys its
customers to select specific locations for a new
supercenter. Camping World credits this detailed
analytical approach with the fact that it has closed
only one store since inception. Camping World does
not plan to open a new supercenter in 1997.
The
aggregate cost to construct and open an 18,000 square
foot supercenter (the anticipated typical size of new
supercenters) is estimated to be $2,750,000. It
typically takes six months to complete construction
of a store.
Camping
World leases seven facilities under long-term leases
with partnerships in which David B. Garvin, the
founder and chairman of Camping World, and Thomas A.
Donnelly, president of Camping World, are partners.
The Products
Camping
World sources over 8,000 products from approximately
800 vendors. Camping World attends regional, national
and international trade shows to determine the
products it will offer. The purchasing activities of
Camping World are focused on RV parts and
accessories, electronics, housewares, hardware,
automotive, crafts, clothing, home furnishings,
gifts, camping and sporting goods. Camping World has
developed an automated plan-o-gram system to provide
merchandising plans to each supercenter and a
minimum/maximum inventory system for its operations
to improve fulfillment rates on key items. Camping
World believes that the volume of merchandise it
purchases and its ability to buy direct from
manufacturers to-gether with the utilization of its
transportation fleet enables Camping World to obtain
merchandise at costs which compare favorably to local
RV dealers and retailers. Camping World does not
enter into material long-term contracts or
commitments with its vendors. Camping World’s
largest vendor, a supplier of awnings, refrigerators
and air conditioners, accounted for approximately 12
percent to 13 percent of Camping World’s total
purchases during the last two fiscal years.
The Future
AGI
plans to achieve operating efficiencies by
selectively acquiring and developing recreational
affinity groups which enable AGI to increase
membership enrollment and to realize cost savings.
AGI also plans to enhance its importance with third
party providers of products and services by
maintaining high membership enrollment levels in such
programs, thereby increasing the fees it receives
from such vendors. Where appropriate, AGI may
consider directly providing certain products and
services which had been provided by third parties.
AGI
believes the experience it has accumulated in
managing its existing recreational affinity groups is
applicable to the management of other recreational
activity organizations. In 1990, AGI acquired the
Golf Card club and has successfully grown membership
by approximately 47 percent since its acquisition. As
a result, AGI conducts ongoing evaluations for
developing or acquiring affinity groups for which it
can build membership enrollment and to which it can
market products and services. AGI expects to
concentrate its efforts over the near term on
integrating the operations of the Camping World
President’s Club with AGI’s Good Sam Club.
AGI
plans to expand its presence as a leading publisher
in select recreational niches through the
introduction of new magazine formats and the
acquisition of other publications in its market or in
complementary recreational market niches.
Publications
in complementary niches may also provide AGI with the
opportunity to launch new membership clubs, to market
its products and services to members of the new clubs
and to develop other products and services which meet
the special needs of such members.
AGI
believes overall circulation of its magazines is an
important factor in determining the amount of
revenues it can obtain from advertisers. In addition,
since paper and printing costs are a significant part
of operating expenses, management also believes that
AGI will achieve improved economies of scale when
purchasing these items following the acquisitions.
AGI
plans to increase the sale of its products and
services due to their profitability and the favorable
impact such programs have on club membership growth
and retention. Manage-ment believes that a
substantial opportunity exists to market its products
and services through the national network of Camping
World supercenters and mail order catalogs.
A
significant percentage of Good Sam Club members
currently subscribe to one or more of its products
and services, such as the emergency road service
program and the recently introduced extended vehicle
warranty program.
Management
believes it can successfully market such products and
services to Camping World President’s Club
members who have interests and demographic
characteristics similar to those of Good Sam Club
members and for whom there is limited penetration of
such products and services.
AGI
regularly studies the feasibility of introducing new
products and services. For example, in 1995, AGI
introduced its extended vehicle warranty program
which had approximately 1,600 policies in force as of
December 31, 1996.
Management
also believes that the Good Sam Club members who are
not currently President’s Club members represent
a focused group of customers to which it can sell
Camping World’s RV accessory merchandise.
And
that’s just about everything you would ever want
to know about Affinity Group, Camping World, and
their plans for the future.
RVN
