• Not so Easy takeover

EasyHotel shareholder Icamap has joined forces with Ivanhoé Cambridge to bid for the outstanding shares in EasyHotel, in a deal giving the group an enterprise value of GBP126.1m.
The pair said that the company needed “significant investment” to fulfil its potential, but have come up against opposition from the EasyGroup founder, who described the offer as “too low”.
The 95p per share offer valued EasyHotel’s equity at GBP138.7m on a fully diluted basis and implied a multiple of 36.7 times the growing company’s Ebitda of GBP3.4m for the 12 months ended 31 March 2019.
EasyHotel said: “The independent…directors, who have been so advised by Investec as to the financial terms of the offer, each consider the terms of the offer to be fair and reasonable.” The independent directors said they intended to recommend that shareholders accept the offer.
The bidding pair said that they had “received irrevocable undertakings to accept (or procure acceptance of) the offer from each of the independent EasyHotel directors…representing approximately 0.7%. of the issued ordinary share capital of EasyHotel”.
Icamap has a 38.65% share in the business, with EasyGroup the second-largest investor, with a holding of 24.54%. Sir Stelios Haji-Ioannou, EasyGroup chairman, described the offer as “very low”, adding: “I urge all other shareholders to take no action (ie not accept the Icamap offer) until the true value and future potential of EasyHotel can be evaluated. It should be noted Icamap themselves paid 110 pence only 18 months ago and the stock has been as high as 128 pence just 15 months ago.”
Other significant shareholders at 30 June were; Polar Capital (5.91%), BennBridge (5.28%), Canaccord Genuity Group/Hargreave Hale (4.78%) and Aberdeen Holdings (3.05%).
Tom Brumby, analyst at Langton Capital, pointed out that the offer represented “a discount to EasyHotels’s last two fund raisings, which were to raise GBP38m at 100p in September 2016 and to raise a further GBP50m at 110p in February 2018. Supporters of the shares at the time of those fund raisings will suffer a 5% or a 14% loss of value as a result of the proposed takeover.
“Nonetheless, the proposed takeover price represents a 35% premium to Friday’s closing price and a 27% premium to the average price over the last six months.”
Harm Meijer, one of the founding partners of Icamap, said: “We have been a shareholder in EasyHotel since October 2016 and have been the principal supporter of two capital raises…However, we also believe that the company needs a change in its shareholder base in order for EasyHotel to become a true leading pan-European budget hotel player.
“Our offer enables shareholders to exit from an illiquid stock at a 34.8% premium and, we believe, will result in greater clarity of ownership and direction for the company and its management team. We are open-minded about whether EasyHotel remains a publicly-traded company or becomes private. In either case, we believe that the change of ownership which our offer will deliver is essential to enable EasyHotel to navigate the current market uncertainty and to thrive in the future.”
EasyHotel chairman Jonathan Lane said: “The independent EasyHotel directors consider that the offer is fair and reasonable and in the best interests of shareholders, the company, its employees and wider stakeholders. Liquidity in EasyHotel stock has been limited since the company was admitted to AIM five years ago.”
EasyHotel’s 12 owned hotels comprised 1,340 rooms, and it had a further 26 franchised hotels with 2,293 rooms. EasyHotel’s committed development pipeline of owned and franchised hotels currently consists of nine owned hotels and eight franchised hotels.
At the end of May CEO Guy Parsons told Hotel Analyst that the shift towards franchising in the UK would take place over the next two years. He said: “Our focus has been on opening owned hotels in the UK, but we’re now reaching a critical mass and will move to franchising. We continue to continue to develop in London, Edinburgh, York and Bath, but we will open more owned hotels in France and Spain. We have a good pipeline in both countries.”
Parsons said that the company had been looking at some going concerns in mainland Europe in addition to new builds.
The group said that it had GBP34m of bank funding available, around half that in the same period last year, with Parsons confident of the group’s ability to fuel its growth. He said: “We are not highly leveraged, but we have no plans to go back to the market. Never say never, but there are other sources of money available.”

HA Perspective [by Katherine Doggrell]: And indeed it turned out that there were other sources of finance available and they were under their noses the entire time.
But we do, of course, need to talk about Sir Stelios, who launched EasyHotel back in 2004 and didn’t have the greatest of success with the company initially. It would not be blowing too much smoke Parsons way to say that it was only with his arrival in 2015 that the brand really started to show progress and indeed, one year later in came Icamap. While Sir Stelios knew all about yield management, Parsons had a background at Travelodge, Whitbread and Accor. Regular readers will recall that Sir Stelios likes to keep his hand in with the company by regularly stepping in to try and curtail pay increases for Parsons and his colleagues.
Will this be more than footstamping from Sir Stelios, will he dig in to prevent the exit of an Easy business? Or will he impose onerous licensing fees on the name? And what’s in a name?
In this case, quite a lot, certainly when it comes to the European expansion, when Parsons has spoken of the halo effect with the EasyJet brand (if you think that the word ‘halo’ can be safely used anywhere near EasyJet). But worth noting that Icamap and Ivanhoé Cambridge will want an exit eventually and it might be worth paying a little more to shake Sir Stelios now, rather than later when one of the global operators might be looking to get back into economy hotels once their luxury bingeing is over.
European success for the brand could appeal to the Sir Stelios ego, but would it grate too much not to be able to have a say how much everyone gets paid? With less – just – than 25%, Sir Stelios is not critical, but could be a thorn.

Additional comment [by Andrew Sangster]: One of the notable features of the half-year results to March 31st was the inference that OTA use had got out of control and would be reined back in this year as a new PMS cam on-stream. It is one of the several challenges facing a relatively small company like easyHotel.
The price being paid for the company makes clear where the value lies in the hotel business: you can have a modest-sized London hotel or you can own an entire brand company like easyHotel.
Private ownership thus makes sense given the hassle of maintaining a market listing, even on the light-touch AIM. Also, it may well be the case that the new buyers see the opportunity to accelerate funding to enable the brand to grow. This loss-making growth is much harder to do on the stockmarket (unless you’re a tech company).
Yotel, a not dissimilar brand, which is focused on maximising real estate yield was snapped up by Starwood Capital and is now presumably being pump-primed to grow. EasyHotel has the potential to be a very interesting product for real estate owners with tricky properties that won’t work well with conventional branded offers.

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