A number of potential buyers, including founder and chairman Andrew Davis, are reported to be considering bids for all or part of Von Essen Hotels, which went into administration with Ernst and Young last week.
Those circling the group are thought to range from private equity groups to high net worth individuals and sovereign wealth funds. However, it is thought that issues around the valuations of the individual sites are likely to slow the process.
HVS's Tim Smith said: "Each of the group's 28 hotels is an individual gem in its own right and it is always questionable whether such hotels, especially ones as small as Von Essen's, can produce enough net income to support the infrastructure of a group. There is little in the way of economies of scale to be factored into their operations.
"It is unlikely that there would be a single buyer in the offing for the entire collection, and it is equally unlikely that such a buyer would be willing to pay a premium for a significant number of hotels in this category. The more likely scenario is that the group will be split with interest and demand for the core assets as a smaller portfolio with others sold individually. The problem will be finding investors prepared to satisfy the requirements of the National Trust for properties such as Cliveden."
The administration refers to the holding company, rather than the hotels themselves. The group had long been the subject of informal speculation as the result of its rapid expansion, reliance on the luxury market in the hard-pressed provincial sector and the reported high price paid for much of the estate.
Despite the exceptional status of many of the group's 28 hotels – which include Dalhousie House and Sharrow Bay – it is thought that it would not have been immune to the downturn in provincial trading. The company is said to have breached a covenant governing the minimum level of underlying earnings and failed to make an interest payment on its £250m debt.
According to The Times, the decision by the group's banks; Barclays and Lloyds Banking Group, to call in Ernst and Young was precipitated by failed talks with Tosca Penta Investments over a potential £150m investment, which would have seen it take a 50% stake. The newspaper reported that the private equity group was concerned over the valuations the company had put on many sites, with much of the estate having been acquired at the top of the market, although it is said to have registered an interest now that the group is in administration.
The two banks were then thought to have taken the decision to have called in Ernst and Young, reported to have been a surprise to Davis. The founder is reported to be considering a move on the group, with Robert Breare, who failed in his attempt to acquire Merchant Inns in 2009, also being mooted for a bid.
The group was valued at £430m, according to its most recent accounts. There have been rumours around individual hotels in the estate, with some reports suggesting that county count judgements have been made against some sites as trading faltered. In its last published accounts in 2009, the group made a loss of £3.2m and paid £14m in interest payments.
Most recently, the group acquired the former home of Laura Ashley, Llangoed Hall Hotel in Brecon, Powys, for an undisclosed sum, commenting at the time that it was planning to continue with its plans to expand not only in the UK, but also internationally, adding to its sites in France.
HA Perspective: Separately in this issue we look at a country house specialist Hand Picked Hotels that has appeared to successfully negotiate its restructuring. Von Essen is a clear failure.
There is a clear split in the UK hotel market between London and elsewhere. Inside the M25 motorway that encircles the UK capital trading has proved remarkably robust. Outside, it is extremely tough. And probably toughest for hoteliers dependent on UK leisure business or conferencing.
There are restructuring opportunities. Proposals to change the planning system to make it easier to convert properties to alternative uses may help, especially if residential housing prices remain robust.
Ultimately there remains much pain to come in the provinces among disparate collections of hotels, many of which are facing huge refinancing challenges. Von Essen is not going to be the last collapse during what is set to be a long and hard recovery.