• Hayley heralds health for four-star

The £358m move on Hayley Conference Centres by Permira-owned Principal Hotels brings further clarity to the UK four-star sector.

It is dividing between niche operators, focused on particular market segments such as conferencing, and international brands better placed to pick-up general business travellers. Those weaker brands without a focus are increasingly troubled.

The conference market has a couple of clear brand leaders in the form of De Vere Venues and now Principal, while Hilton and Marriott have a dominant position to attract general business guests.

Hayley was bought from its founding management team, led by Alan English and Norman Bellone, a private equity firm 3i.

The price for the eight properties within Hayley looks full at first sight given the valuation of £491.6m put on the 16 De Vere Venues in the Vector Hospitality flotation prospectus.

But the average size of the Hayley sites is bigger, with a total of 1,300 rooms. The multiple of calendar year 2006 EBITDA paid is just under 15 times, dropping to 13 times looking out to 2008. In addition, Hayley is in the process of adding 150 rooms.

Tony Troy, CEO of Principal, told Hotel Analyst that he believed the two companies were a “locationally a perfect fit”. Hayley brings better exposure to Southern England and the Midlands. “We now have a complete a la carte mix,” said Troy.

The focus on dedicated training and event venues means Principal can more easily differentiate itself from chains carrying an international brand as Troy believes that this segment is more personal with more reliance on the relationships with conference agents and bookers. “If you have a bog standard portfolio then an international brand would help,” he admitted.

A particular danger for standard business hotels is the emergence of the so-called premium budget segment, called mid scale without food and beverage in the US, which encompasses brands such as Express by Holiday Inn, Hilton Garden Inn and Courtyard by Marriott.

Hayley was started in 1991 and grew to its present size under 3i who both backed the start-up and again reinvested a further £41m in 2005 to support the move overseas that saw the acquisition of Chateau de Saint Just near Paris.

The Hayley deal, which saw CBRE Hotels act as adviser to the buyer, leaves Principal with a total of 17 sites worth in excess of £700m. Current turnover of the combined group, which has 3,000 guest rooms and 400 meeting rooms that can serve more than 20,000 daily conference delegates, is about £130m.

Troy said that Principal was still in the market for acquisitions: “We are not completely where we want to be”. But he stressed that a sale and leaseback to fund further growth was not a given. “There is no pressure to do anything,” he said, pointing out that management hold in excess of 20% of the group.

A sell-off of property had been thought likely because at the end of last year the company sold six hotels to aAim in a £290m sale and leaseback deal.

Martin Clarke, partner at Permira, said in a statement: “The acquisition of Hayley demonstrates Permira’s support of the buy and build strategy for Principal Hotels in the UK and Europe and is part of an ongoing acquisition strategy designed to create one of the UK’s leading hotel groups.”

The sale is a profitable exit both for 3i and for the founders who had a combined stake of 55%. The main shareholder, English, is understood to have netted close to £80m from the sale.

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