CHOICE HOTELS, the privately held operator of the four-star Clarion chain, is in advanced talks to sell a stake of about 25 per cent in the firm to a London-based private equity fund for €25 million.
The company will use the money to fund an ambitious plan to develop a portfolio of four-star hotel interests in Britain, Germany and Russia. Choice operates hotels on a contract basis for third-party owners of hotel buildings.
On a similar basis, it runs hotels for its own shareholders where they have a freehold interest in hotel buildings.
Separate to the private equity investment, the firm is making plans to raise an additional €75 million initially from existing and new investors within the next 12 months to fund the construction of hotels in its new markets.
While typical gearing levels have come down from 75 per cent to 70 per cent in light of the credit crunch, Choice believes the €75 million in equity it hopes to raise will enable it to secure some £250 million (€327 million) for new developments. Such money would build about 1,000 hotel bedrooms, or five hotels based on the firm's 200-room template.
"We want to go to a listing within five to seven years. The shareholder group has been a very solid group of people who have stayed with us right through the whole process but the game is getting bigger and we need new partners," said Choice managing director Frankie Whelehan.
Developer Paddy Kelly has a large stake in Choice, which currently operates 11 mainly four-star hotels. Likely to be finalised in the next two months, the €25 million private equity investment by the as yet unnamed fund will add to the shareholder base that includes Mr Whelehan, businessman Peter Redden and the family of Dublin-based financier John McCormack.
Last August, Choice sold the operations of 11 mid-range hotels for €46.4 million to a consortium involving private equity firm TVC Holdings, former Jurys Doyle chief Pat McCann and clients of Davy stockbrokers. That deal put a value of more than €100 million on the entire Choice group before the sale of the 11 hotels.
While the forthcoming private equity investment will put a valuation of around €100 million on a group now operating fewer hotels, this takes account of the company's expansion plan.
In advance of the investment, Choice has bought rights to develop four hotels in Britain and is examining others.
"We would see the opportunity of getting up to 18 to 20 Clarions in UK in next five seven years," Mr Whelehan said. The firm operates one Clarion hotel in Croydon.
London, Manchester, Birmingham, Edinburgh, Bristol and Liverpool are likely locations for others.
"We would see an opportunity to go between eight and 10 hotels in Germany," he said. "Russia could be two or 22."
Choice will focus initially on Frankfurt, Munich, Stuttgart and Hamburg in Germany. Moscow and St Petersburg are likely locations for its first foray into Russia.
