• Deals still being crunched

The credit crunch may have made it difficult to deals for some in the private equity community, but it does not appear to have had the calamitous impact in terms of deal flow mooted earlier in the summer.

The past week has seen three private equity or investment funds step-up to take on deals worth more than £750m in total.

The key issue that has changed since the summer however is pricing. While it is difficult to be precise on how much things have been ratcheted down, the downwards direction is clear.

When Goldman Sachs’ Whitehall Street funds put up for sale the 19 former Queens Moat Houses earlier this year, a price of £450m was widely seen as the likely target. It appears that property investor aAIM is close to securing the portfolio for more than 10% less at £400m.

Alongside the ex-QMH hotels, aAIM is paying £200m for a group of 18 Express, Holiday Inn and Days Inn hotels which are owned or leased by Kew Green.

The full details of both deals have yet to emerge but InterContinental is being tipped to be installed as the manager for the 30 of the 37 hotels that it currently has flags on.

A key factor in aAIM’s favour was no doubt its strong relationship with backer HBoS which meant it had easier access to debt. Completion is expected early next month.

Meanwhile, a deal that did complete this week was the acquisition of a portfolio of 11 Express properties owned by Morethanhotels. Private equity firm JER Partners has paid about £115m for the 1,450 rooms (including two development sites).

Malcolm Le May, president, JER Europe, said: “The UK limited service hotel market, which is currently fragmented and undersupplied, presents significant investment opportunities.”

“The acquisition of Morethanhotels is an exciting first step, providing JER with economies of scale, credibility with franchisors when expanding and visibility to other potential vendors of sites or individual hotels.”

Debt in the deal was arranged by Royal Bank of Scotland and provided by RBS, Abbey and AIB. The right deals, with a sound story and pitched at the right price, can clearly still find debt.

And in yet another move by a private equity player, Principal Hayley Group, the chain backed by Permira, is tipped to buy three Marriott properties being sold by Quinlan Private and Igal Ahouvi for £50m.

The three hotels were part of a package of five brought to market with a price tag of £75m back in May, prior to any real signs of the credit crunch. One site of the three is expected to be converted to a conference centre while the remaining two will be reflagged as Principal Hotels.

In a neat circular link, aAIM struck a sale and leaseback with Principal for its original six hotels back in December for £270m. Principal subsequently went on to pay £358m for Hayley Conference Centres in May.

A study issue last week by PKF, Deal Drivers UK, found that deals involving UK leisure companies were typically in the small and mid market value band (under £300m), particularly in the lower mid market of £15m to £100m.

Over the past three years (up to the second quarter of 2007), deals had increased from 20 to 40 in number per quarter with an average of £4bn in deal flow each quarter. The credit crunch is likely to slow down deal flow but it has clearly far from stopped.

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