NH Hoteles has swooped on Italian chain Jolly in what NH describes as a “decisive step in the consolidation of a leader in the business travel segment in Europe”.
The price paid, however, looks steep and the deal needs to be decisive enough to deliver returns on the close to Eu600m deal.
The complex deal is seeing NH take control of Jolly, Italy’s largest business hotel chain. The Eu429m of equity plus Eu240m of net debt is being taken out at an EV / EBITDA 2006 multiple of 13.4 times. NH said it is looking at a share issue to help digest the acquisition.
NH already owns 20.7% of Jolly and will, through its joint venture with Banca Intesa, own 50.7% of the new company being formed to buy out Jolly, called Grande Jolly. Banca Intesa will own 7% separately and 42% will be owned by Joker, a vehicle for Jolly’s original founding family Zanuso.
Alongside the Eu114m being put in by NH, Banca Intesa is investing Eu86m in the equity of Grande Jolly. There is a put and call option for the rest of Joker’s stake in Jolly, to be exercised by 2010.
Jolly has a total of 7,452 rooms, of which 5,863 are in Italy. These split 2,341 owned, 2,855 leased and 667 franchised. The remaining rooms are in London (St Ermin’s), Amsterdam (Carlton), Paris (Lotti) and New York (Madison Towers) – all owned – plus leased hotels in Berlin, Cologne and Brussels.
NH said that Jolly was the best possible strategic fit with both companies focused on the business traveller. It said that Italy was a very fragmented market like Spain was in the 1980s.
Italian cities further benefit from a strong tourist business which helps create stable revenues and low seasonality.
The new look NH will see EBITDA from Spain shrink from 41% to 33% and from Benelux from 46% to 38%. Italy will be the third biggest contributor of EBITDA at 15%.
Although Germany contributes 18% of revenues of the new look business, the ongoing problems at Astron mean it delivers just 4% of EBITDA.
The deal means that NH has grown its room count on a compound annual basis by 24.2% between 1998 and 2006. It now has 314 hotels with 46,419 rooms. NH said that its superior margin performance – GOP at NH was 33.7% in 2005 versus 25.6% at Jolly – means there is the opportunity to improve EBITDA at Jolly by almost 50% if NH’s margin can be achieved there.
The challenge for NH is ensuring it does not become bogged down with an Astron-like situation. Results for the first nine months of this year put out this week show that revenues in Germany are continuing to fall although the territory is at last making a positive EBITDA contribution.
Revpar in Germany was up 13.5% thanks mostly to average rate rising 12.8%. NH has renegotiated leases on 14 hotels, making savings of Eu3.38m.
Across all of Europe, revpar was up 10.8%, driven by a 8.5% rise in ADR. EBITDA was up 23.3% to Eu111.73m and net income up 42.0% to Eu24.52m.