The keys to a Successful Hotel Acquisition
The hotel industry is riddled with stories of hoteliers who have made and lost fortunes on a hotel transaction. Whilst the hotel transaction frenzy pre-GFC in 2009 was a busy time for the industry, there are still some good opportunities around for the canny purchaser. How well you buy a hotel, is as important as how you sell a hotel: you need to be strategic and thorough in your approach.
This article will address some of the important aspects of the acquisition process to help potential buyers make a successful acquisition.
- Your Acquisition Strategy
Before you even start looking at potential acquisition opportunities, have a good look at your business model and be very clear about where your strengths and weaknesses lie and also the type of hotel that will enable you to leverage this expertise. Prepare a list of criteria that your target venue should meet:
- Freehold or Leasehold property
- Location : are there regions or towns that you will or will not, look at
- Minimum Earnings (EBITDA)
- Price Range and your Valuation Multiple
- Business orientation (Bars, gaming, retail, accommodation, food)
- High Level Review to Assess suitability of a Target Venue
Once you have established your acquisition strategy and have identified a number of potential targets, start obtaining information from the agent (or vendor) and conduct a high level review to identify headline opportunities and threats. Review our Guide to a Successful Hotel Acquisition available on www.hanrickcurran.com.au/hospitality on how to conduct an effective high level review which will ensure you can act quickly on the right asset and not waste time and money on the wrong opportunities.
It is important to remain impartial in your approach at this stage and keep an open mind about the property. Too often buyers can get caught up in the process and forget about the fundamental criteria that they had set. Be prepared to walk away. You may need to look at quite a few venues before you find one that matches your criteria. Remember it is far easier to buy a hotel than to sell one.
- Developing a Negotiation Strategy
Once you have decided to progress a potential acquisition, develop your negotiation strategy with the agent and vendor.
- Price: Based on your preliminary evaluation of earnings, decide your minimum and maximum price points. It is often useful to seek independent advice to help you understand where the market value for the property sits.
- Offer Conditions: consider the information you will still need and other conditions that will need to be satisfied and included with your offer. Refer to our Guide to a Successful Hotel Acquisition for a summary of the typical conditions to consider including
- Approach: depending on the mode of sale (tender, auction, expressions of interest or private treaty) you will need to consider your approach to submitting an offer. This is a crucial stage to get right and there is an art to reading the situation to submit a successful offer. Refer to our Guide to a Successful Hotel Acquisition for an overview of the approaches that could be appropriate.
Your approach may well depend upon your bargaining power, and how willing you are to walk away from an acquisition. Remember to remain objective!
- Putting your Acquisition Team together
It is important to put together your team of professionals to assist you with your due diligence. Your professional team should comprise of experts in both their discipline and the hotel industry including:-
- Accountants to assist with the financial modelling, due diligence and tax structures to ensure maximum flexibility and minimised tax impacts.
- Solicitors to assist with contractual documentation, licence and property due diligence.
- Finance broker or bank manager to ensure your finance costs are minimised, and finance cash flows fit with the cash flows the venue will be generating.
- Gaming analysts to quantify any gaming upside, machine or game upgrades and the latest technology.
- Other experts to assist with menu engineering, outsourcing review, time & attendance or stock systems and security vulnerabilities.
As always – try to keep emotion out of it. There are many tales of heart over head acquisitions, but most don’t end up well. Remember you are buying an asset to feed you and your family, and to fund you through to and into retirement. That is too important a decision to leave to your “gut” alone.
For expert support through the hotel acquisition assessment and objective decision process review our Guide to a Successful Hotel Acquisition or call one of the Hanrick Curran Hospitality Advisers Peter Maletz, Kim Hanrick or Ian Vander Woude in Brisbane on 07 3210 3900 or Cairns on 07 4052 7524.
Please note that this publication is intended to provide a general summary and should not be relied upon as a substitute for personal advice.