The owners of Choice Hotels are reinvesting some €3 million in the €46.4 million buyout of its Quality and Comfort chains by private equity firm TVC Holdings, which consists of former Jurys Doyle chief Pat McCann and clients of Davy Stockbrokers.
The reinvestment by property developer Paddy Kelly, Choice managing director Frankie Whelehan and members of the McCormack family means that they will keep an interest in the operation of the 11 hotels.
They separately retain freehold ownership of the hotel buildings, which were built under a tax incentive scheme.
The deal implies a presale valuation of more than €100 million for the entire Choice group, which will focus in future on its four-star Clarion hotel business. In recent days, the group signed contracts to develop the Clarion brand in Britain and Germany.
The deal will see seven mid-range Quality hotels in Dublin, Cork, Galway, Wexford and Limerick and four budget Comfort hotels in Dublin and Portlaoise transfer to a new operating firm called Dalata. The transaction provides an entry into a new sector for TVC, formerly Trinity Venture Capital, which last month raised €50 million in a flotation on the IEX and AIM markets in Dublin and London.
"We are delighted to announce this investment so soon after our successful flotation. It clearly demonstrates TVC Holdings' ability to identify and execute large deals in different market sectors," said TVC executive chairman Shane Reihill.
The deal involves more than €31 million in equity and €15 million in bank debt from Ulster Bank. TVC is investing €10 million for a 29 per cent stake in the business. Davy clients will have 21.5 per cent.
Mr McCann, who is chief executive of the new company, is investing €1 million. Irish Life & Permanent finance director Peter Fitzpatrick is chairman of the new company. Mr McCann's deputy is Stephen McNally, former head of Jurys Inns in Britain and Ireland.
The chain's new owners expect to more than double the value of the business by the end of 2012. A document circulated to Davy clients says the hotels are projected expected to generate €2.5 million in earnings before interest, tax, depreciation and amortisation of in 2007.
This is forecast to rise to €4.6 million next year and to €11.5 million by the end of 2012, at which point the business is expected to be worth €100 million. This would equate to an internal rate of return of 21 per cent a year, after carried interest.
The consortium is paying €41.5 million to buy the business, some €3 million has been raised as development capital and €2 million will be paid in adviser fees.
Mr McCann said he would like to add new properties in Belfast, Cork, Dublin and Galway. "Belfast is a must for us and we're also starting to look at provincial UK locations," he said.
He expects to double employee numbers to more than 1,000 in the next five years.
