Bass PLC (Bass) announced this week that it has acquired the entire business of Posthouse from Compass Group PLC. The consideration for the purchase was £810 million, in cash.

Jones Lang LaSalle Hotels acted as property advisor to Bass throughout the negotiation process, giving strategic property and valuation advice. Arthur de Haast, Managing Director at Jones Lang LaSalle Hotels stated that “the EBITDA multiple of 6.2X that Bass achieved on the deal represents an attractive multiple in this segment given the number of quality assets and strategic benefits that the portfolio offers to Bass”.

Posthouse consists of 79 mid-scale hotels with 12,300 rooms. Of these, 77 hotels are owned freehold or are held on long leases and two are management contracts. In addition, one new hotel will open in Oxford later this year. 78 of the hotels are in the United Kingdom and one is in Ireland. Many of the hotels have excellent locations at key motorway and other major road junctions, in city centres and at airports with a particularly strong network in the South East.

Bass will be able to add considerable value to the majority of these properties by upgrading them to its international Holiday Inn brand. This will enable them to benefit from the brand recognition, global reservation system and salesforce of Holiday Inn. As a result of this, Bass anticipates substantial outperformance in revenue per available room.

This acquisition is in line with one of Bass` fundamental strategic objectives of building its mid-scale brand distribution in Western Europe. It will enable Holiday Inn to develop a leading position in the UK market
which will also help to attract more of the growing intra-European cross border business and leisure travel.

Over the last four and a half years the portfolio has benefited from over £200 million of investment. Bass expects to invest an additional £75 million of expansionary capital in the hotels over the next three years in order to bring them up to Holiday Inn standards. It is currently anticipated that around 15 of the properties will not be retained, either because they are not suitable for upgrading to Holiday Inn or because they are too close to existing Holiday Inn hotels.

In the year to 30th September 2000 the 79 hotels made earnings before central costs, interest, tax, depreciation and amortisation of £130 million and operating profit, also before central costs, of £110 million. At 30th September 2000 Posthouse had net assets of £1.023 billion.

Commenting on the acquisition, Tim Clarke, Chief Executive of Bass said “This purchase is an important move forward in the implementation of our strategy to make Holiday Inn a leading brand in each of the principal European economies, comparable to its position in North America. The UK market is strategically important to Bass, not only as a major domestic hotel market, but also as the world`s third largest source of out-bound travellers. As a result the conversion of these properties to Holiday Inn
will also enable us to leverage the brand expansion into other markets. We are delighted we have been able to acquire these assets at an attractive price.”

“This transaction continues the repositioning of Bass and replaces half the profits of Bass Brewers, that was sold for £2.3 billion last year, with profits with significant growth prospects.”

——-