The UK's beleaguered mid-market continued to make the news last week, as strength in the budget sector and a recovery in corporate travel put pressure on the provincial hotels in the middle.
As Akkeron Hotels was acquiring 10 sites from the administrators of Butterfly Hotels and Crowne Hotels, Whitehall Real Estate, a Goldman Sachs fund, failed in attempts to agree a debt restructuring deal on 14 Queens Moat House hotels.
The news that KPMG had been appointed to look at loan enforcement options marked another rung downwards on the ladder for QMH, which was one of the highest profile collapses in Europe of the 1990s recession.
There is £107m of debt secured against the hotels, which trade under Crowne Plaza and Holiday Inn brands and are part of a portfolio of 28 hotels purchased by Whitehall Real Estate in 2005. This debt has been extended once, in February 2010.
Debt servicer Capital Asset Services (Ireland) said that talks over the loan, which is due to mature on 23 February, were no longer being pursued. The group said that it estimated that, should it pursue loan enforcement, it would take between six months and a year to recover the money. However, it also said that a sale would pay the loan in full, with the estate thought to have been valued at around £230m.
At its peak, QMH was formed of around 190 hotels, in 11 countries. However, after a scandal around dubious accounting practices, an asset write-down and the firing of its board in 1993, it underwent a major restructuring in 1994, over 18 months after its shares were suspended The move saw £1.2bn of debt rescheduled, £200m of which was converted to equity.
The move failed to end the story for QMH, which was in breach of its banking covenants in October 2003 and failed to publish its full-year accounts. It was at this point that Goldman Sachs stepped in, in a deal which saw Westmont Hospitality take over management of the hotels, which at that point numbered 80, in the UK, the Netherlands and Germany.
Following the sacking of three directors and the chairman in 1993 – a High Court judge ruled found them guilty of preparing 'seriously misleading' accounts; making false representations to the stock market, concealing 'dubious' deals and entering into 'wholly artificial' transactions – Andrew Coppell was bought in as CEO, a role he stayed in for a decade. Coppell has most recently bought his restructuring skills to bear at Alternative Hotel Group – itself now subject to sale rumours – in its £650m debt-for-equity swap with Lloyds Banking Group in March last year.
One company which could show an interest in the portfolio, should it come to market, is Akkeron, which continued to show a taste for pressured mid-market hotels with its deal to buy 10 sites from Butterfly Hotels and Crowne Hotels. The deal saw it increase its estate to 36, many of which are, like the QMH portfolio, under the Holiday Inn Express brand. Matthew Welbourn, MD, described Butterfly as "an unfortunate victim of the recession".
Akkeron has been active over the past few months, acquiring the 18-strong Forestdale Hotels in December. The group entered the regional UK market in 2009 with the purchase of eight Folio hotels from Mulbourn Hotels.
Welbourn added that the Butterfly acquisition provided "the initial phase of the third leg of our mid-scale business, bringing to the group a portfolio of hotels that trade under international brands". The group has aspirations towards a 150-strong portfolio, operating outside London in the UK provinces, comprising a blend of ownership, leases and management contracts.
For Welbourn, acquiring the remains of QMH would have a special resonance. Prior to joining Akkeron, he was operations director at the group from the restructuring in 1994, to 2006. Twelve years in which he will have learned many lessons about the UK provincial market.
HA Perspective: It is wrong to equate mid market with disaster but that is precisely how the segment finds itself labelled in many quarters.
This is not so much a function of being squeezed between economy hotels from below and upscale from above but from the fact that so many properties are under invested, over leveraged or both.
That said, the way out for many mid market hotels is still far from clear. Simply refinancing and shuffling around a few badges over the top of the properties is unlikely to result in a radical transformation of the underlying business.
Perhaps the likes of Akkeron have a master plan to revolutionise the segment. If there is one, it has yet to be made clearly visible.