Freedom of Choice

THE FRIDAY INTERVIEW/Frankie Whelehan Choice Hotels Ireland:Managing director Frankie Whelehan says the firm's options include a listing on the small-cap AIM market in London, taking in a private-equity investor or entering a joint venture with a financial institution. "We have to evaluate those. We'd see that what we've done in Ireland, in arguably one of the most difficult hotel markets in Europe, is very, very scalable and, hopefully, in time is very, very saleable," he says.

The €46.5 million sale of the midrange Quality chain and budget Comfort chain to TVC leaves the firm with seven four-star Clarion hotels in Ireland and annualised revenues of €120 million. "In the Clarion model we have net margins of 7 per cent. We expect to grow that in a more mature market to somewhere around 11 per cent," says Whelehan.

There's ample scope for a serious foray into Britain, Germany and further afield in Europe, he says. Choice will reinvest some of the proceeds of the TVC transaction in the expansion, with Whelehan in no doubt about the scale of his plans.

"Our aim is to take the UK to 18 properties and Germany to circa 12 properties. We see that happening within a three-year timeframe."

In his view, turnover should increase to €350 million to €400 million in the same period. That's from a virtual standing start in Germany and Britain.

The Clarion brand is not yet present in either market, although Choice already has sites under development in London, Manchester, Birmingham and Edinburgh. In the longer term, the firm sees opportunities elsewhere in Europe and in the US.

It's ambitious for sure, but Whelehan doesn't do half measures. The TVC deal has provided him with his first fortune - at the age of 38. Now he aims to repeat the exercise on a larger scale. "There's nothing that we've done that can't be done again," he says.

Whelehan has commerce in his genes. His family and ancestors ran Whelehan's pub at Rochfortbridge, Co Westmeath, from 1819 until 20 years ago.

With his brother and seven sisters, Whelehan grew up in a family business that embraced the pub, a grocery and an undertakers. "It wasn't a family; it was a labour force," he says.

Whelehan then studied at the Shannon College of Hotel Management. He spent a year on work experience in Switzerland and his final year in a junior management job at the Holiday Inn in Croydon. He stayed another year in that hotel, and it was there that he met his wife, Jo O'Regan.

Whelehan returned home in 1992 to the Great Southern hotel group. He worked in its Killarney, Parknasilla and Eyre Square hotels, and left in 1996 to take the job of general manager at Morrison's Island Hotel in Cork. "It was a small, 42-bed hotel, but at 26 years old, it offered me the first opportunity of a general management position."

It also provided an entrance into the world of business ownership. The hotel at the time was owned by a business expansion scheme, in which Aer Lingus pilots, DCC and Pierse construction had an investment.

"I was working there for approximately a year when the owners put it up for sale," he recalls.

Whelehan met two future business partners in the sale process. The first was developer Paddy Kelly, who bought the Cork hotel. The second was underbidder Peter Cashman, who at the time ran 350 European hotels in the Choice group. Kelly wanted to take advantage of unused capital allowances in the hotel but needed Whelehan to run the business. "Paddy gave me quite a number of calls over a short period, the last of which offered me an opportunity to become partner in the hotel to buy it with him."

Whelehan had no money of his own to invest in the project, but that did not put off the millionaire developer. "The next day a bank draft arrived down to me for £80,000, with a compliments slip saying, 'pay me back when you can'. Last Friday he got a multiple of that."

With the specific intention of exploiting tax breaks for hotel investment, Kelly and Whelehan formed a partnership to develop a hotel group of their own. Cashman's group sold the Irish franchise for the Comfort, Quality, Sleep and Clarion brands to their business and became a 50:50 joint-venture partner with them.

"Whilst that great marriage was in courtship, the whole capital allowance scene in Ireland was emerging, with developers building hotels to shelter profits and rent rolls from other activities through a hotel. The wise among them recognised they couldn't run hotels, creating an opportunity for a hotel operating company to expand rapidly in this sector without the traditionally very significant capital cost of getting into the hotel business.

"Our first hotel was the Quality hotel in Galway. We took a 50 per cent stake in the freehold and put a lease on the entire property to Choice Hotels Ireland. The 50 per cent stake was us as individuals."

This gave the new group its first operating hotel and an investment template in which the ownership of hotel sites would always be separate from the operation of the business.

That was in June 1998. By 2006, the group was in control of 4,000 bedrooms in 23 hotel sites.

Whelehan attributes the group's rapid expansion to key factors such as the adoptation of international brands, which gave the business group access to international markets. Brand diversity also enabled it to open several hotels in a single city or town. This generated efficiencies of scale in purchasing, reservations and management.

Important, too, was a partnership ethos. In case of any disagreement, Whelehan says "there's nothing that a cup of coffee won't solve" if each party has an interest in the business.

The group developed close links with financial institutions such as Anglo Irish Bank, Bank of Scotland (Ireland) and IIB. It also formed joint ventures with the developers of hotel buildings. When Choice Europe sold out in 1993, the group took an equity investment from Alanis Capital, the vehicle of financier John McCormack and his family.

Whelehan also made sure to develop close ties with his hotel managers.

"Where we could, we made the manager of the hotel a partner in the freehold. Where we couldn't, we awarded shareholdings in the operating company. It's not only incentivising people, it's a completely different mindset. We want people to feel, 'this is actually my future'."

Thus the group benefited from low turnover of management staff and what Whelehan describes as a "general sense of wellbeing" among managers.

"That can be applied internationally now. There are a lot of management people who never had a shot at ownership because the capital requirement was so great. You either buy a pub and put on 20 bedrooms and wear an AIB or Bank of Ireland T-shirt for life, or you can take a stake in a larger operation which you are trained to operate. And, most importantly, you have a life in the process, as opposed to the first choice."

So why sell a big chunk of the business now? "There was an opportunity there to cash in some chips and refocus our management team into a European hotel company from an Irish hotel company," he says.

Whelehan says TVC Holdings made the first move last March, on the last day of the Cheltenham racing festival. He says "catching any man" on such a day smacks of "taking advantage", but he was already thinking ahead.

TVC wanted at first to buy the entire Choice group, but ultimately agreed to buy part of it. Happily for Whelehan, the group's approach coincided with an internal review. "We're almost 10 years old now, so the timeliness of the approach was absolutely spot on, because there was a review of the group going on at that particular stage.

"The Clarion brand was available in UK and Germany, whereas Quality and Comfort were not. The Quality and Comfort business was always destined to be an Ireland-only hotel group from our perspective. That was the principal deciding factor."

The deal closed last week when TVC, former Jurys Doyle chief Pat McCann and clients of Davy stockbrokers bought out the Quality and Comfort hotels. Whelehan, Kelly and the McCormacks retain ownership of some of the hotel sites and they have also reinvested some €3 million in the TVC group.

"We did that because of the very good working relationship we had during the transaction. You don't often have that. It's a mark of confidence in the business going forward - and in Pat McCann."

For Choice, the next phase starts now.

Name:Frankie Whelehan

Job:Managing director, Choice Hotels Ireland

Age:38

Family:Married to Jo O'Regan. They have three daughters.

Why he is in the news:In advance of a foray into Britain and Germany, the company has sold 11 Irish hotels to a consortium led by TVC Holdings

Something you might expect: He's ambitious

Something surprising:He likes gardening. "They don't talk back," he says of plants Choice Hotels Ireland plans a big international expansion after selling 11 of its Irish hotels to a group led by TVC Holdings. The firm has won the rights to develop the Clarion brand in Britain and Germany, but it will require up to €60 million from external investors to start down that road. So where will the cash come from?