Private equity investor Lone Star Funds has bought the Jurys Inn hotel chain in a GBP680m deal.
The acquisition includes the brand, along with an estate of 25 hotels in the UK, five in Ireland and an outpost in Prague. Of the estate, three hotels in London and at Heathrow airport are operated under Hilton flags, a deal agreed a year ago in a bid to enhance international guest numbers.
The deal will return the investment partners close to four times the equity they invested in a restructuring enacted in 2013. And for the banks involved, there is a tidy exit from a situation where they were obliged to turn debt into equity.
The long established Jurys was acquired in 2007 by entrepreneurial Irish investor Derek Quinlan, when he paid GBP791m in a highly leveraged deal. The following year, Quinlan drew in the Oman Investment Fund, which bought a 50% stake.
With weaker trading failing to support the company’s debt repayments, a restructuring involved RBS, through its Ulster Bank subsidiary, taking a stake in place of loans. A GBP120m cash injection from new investors Mount Kellett Capital, and Westmont Hospitality helped reduce subsequent debt to GBP240m.
Interestingly, the ownership group came together and backed a policy of investment in the estate, and this appears to have paid off. Around GBP45m was committed to not just refurbishments, but extensions of the hotels. More recently, in the first half of 2014, the group bought out the freehold of three of its hotels, in Swindon, Bradford and Sheffield, paying developer and builder McAleer & Rushe an estimated £10m.
Nick Weber of Mount Kellett commented: “Prior to its acquisition less than two years ago, Jurys Inn was burdened by excessive debt and faced an uncertain future. The investor group brought fresh capital, restructuring expertise, and a focused strategy to help transform the company into one of the leading mid-market hotel groups in the UK and Ireland. We are grateful to the management team, the group’s employees and our fellow investors for their partnership in securing what is a great outcome for all stakeholders.”
John Davison, global head of the Strategic Investment Group at the RBS, added: “We are very pleased to see the highly successful outcome of this transaction. As an existing lender to a business requiring financial and operational restructuring, we took the decision almost two years ago to support the business when it was most needed, becoming both a new shareholder and a new lender to Jurys Inn. We are delighted to see that a combination of new capital and active management of the business has resulted in a successful turnaround and growth story. We appreciate the efforts of the management team, the employees and our fellow shareholders and lenders in being able to deliver this very positive outcome.”
For OIF, the Jurys investment was one of its first. Hassan Al Nabhani, CEO of OIF, said: “The capital restructuring undertaken in May 2013, with the co-operation of the lenders and our partners, revived the group paving a new path of growth and progress. On this occasion, I would like to thank our partners, lenders, the board, advisors, management and employees for their collective effort in bringing this wonderful association to fruition.”
John Brennan, CEO of Jurys Inn, is set to remain in place heading up the company. He noted: said: “The substantial investment in our business and brand, coupled with the efforts of management and our employees, have allowed us to deliver record results in recent years. We are now delighted to have attracted a new owner of the scale and calibre of Lone Star Funds, who are very committed to the future growth and development of the Jurys Inn brand and business and we look forward to working with them in realising our joint ambition for the business and to capitalise on the significant opportunities emerging within our sector.”
HA Perspective [by Chris Bown]: This deal is unusual for a number of reasons. Its ownership group managed to agree to a strategy of continued investment, confident they would get their return. And so it seems they have, selling a business with its assets in good shape, and a management team that has delivered a strong performance.
Second, the sale appears to have been successfully completed off market, without weeks of speculation, or competing bids from rival private equity players.
Third, it appears that Lone Star has bought a business that has little need of restructuring or refinancing; extracting value will be about growing the business. The company has said it will retain the existing management, which means that Jurys is unlikely to be bundled in with Lone Star’s other significant UK hotel investment in the UK, the Hotel Collection.
So, what next for Jurys, and where will Lone Star get its return? There could be expansion, adding to the existing chain. The odd outpost property in eastern Europe could be the focus for an expansion in that region; there may be opportunities to add UK properties.
Then there could be some left field plays. A year ago, Jurys announced it was rebranding three of its properties under Hilton flags, with two central London properties becoming DoubleTrees, and its Heathrow airport property moving to the Garden Inn format. Will there be further similar moves?