Acquiring a business can be a complex, resource intensive and time consuming process, yet attaining the right business can generate substantial value. We have come up with ten key issues that should be taken into account when acquiring a hotel business. In part one of our two part series, we consider the first five:
- the right price – naturally the most important factor when acquiring a hotel is the price you pay. Many finance professionals will tell you ‘valuation is more of an art than a science’, however by utilising appropriate hotel valuation methodologies (discounted cash flow analysis, EV/EBITDA historical transaction multiples and surveyor valuations) a purchaser will ensure a robust position when negotiating a final price.
- timing your purchase – the timing of any potential acquisition is fundamental to its success. If the assets are part of a distressed sale the acquirer may need to act quickly to avoid the hotel being sold to a different acquirer. This is particularly the case where an acquirer is interested in purchasing a prestige property - these are rarely available and the acquirer will have to act quickly to ensure a successful bid. Having flexible management capacity and speedy access to funding is essential to improve the likelihood of success.
- proper due diligence - as an acquirer you want to gain comfort that you are acquiring what you expect. High quality financial, commercial and legal due diligence will uncover key issues that could make or break the sale and be key to negotiating the right price. It is important your advisers are highly responsive, and can react quickly to changing situations.
- managing the bid process – hotels are commonly sold under an auction process. Potential acquirers need to first submit an indicative offer, and if that is successful, a final, binding offer is required. This process can be complex and resource intensive with tight deadlines. The bidder offering the highest price is not necessarily guaranteed to be successful, the structure and timing of your offer can have a large impact on any decision made. You will also need to be able to support your offer by providing evidence of the funds required and your ability to complete rapidly and with certainty.
- funding your bid – as an acquirer will you fund the purchase through existing cash resources or do you need external debt finance? Do you know how much your lender is willing to lend to fund the acquisition? Most lenders will lend based on a multiple of EBITDA, which can be around five, for regional hotels, up to around eight, for prestige London locations.
If you feel that the issues highlighted are likely to impact your acquisition or would like any further information, please get in contact
to discuss how we can help.
Our hotel experts
can advise you at all stages and aspects of hotel owning, helping you to manage risk, minimise tax leakage, and deal with regulation, from both a UK and international perspective.
Hotels & leisure