Carlyle Group explores possible divesture of budget chain B&B

(B&B Hotels)

Carlyle Group, the New York-based private equity group, is exploring the possible sale of its budget hotel chain B&B Hotel Group, reportedly enlisting Morgan Morgan Stanley to look into the divestment or possible stock market listing by this fall.

ALong with B&B Hotels, Carlyle has investment positions in other hotel groups including China's 7 Days Group Holdings Limited and Mandarin Hotel Holdings Limited.

Carlyle controls 80 percent of B&B Hotel Group, which operates more than 300 hotels across Europe, but predominantly in Germany and France. Montefiore Investment has a 15-percent stake, while B&B Hotel Group managers hold the remaining 5 percent.

Carlyle acquired B&B in 2010 for €480 million. At the time the group operated 223 hotels, and Carlyle's intention was to expand the company by investing in the renovation of hotels and by accelerating hotel openings across Europe. This included further penetration of the core French market, significant expansion in Germany and growth in Italy, as well expanding the chain into new territories such as Poland, Portugal and The Netherlands. It's done that.

At the time of the acquisition, Franck Falezan, managing director at The Carlyle Group, commented: “We are confident in the continued high growth potential of the company in existing and new European markets. In partnership with our experienced real estate team and B&B’s excellent management team, we look forward to helping B&B reach its full potential.”

Added Eric Sasson, managing director, real estate at The Carlyle Group, added: “Our ability to offer B&B’s management team a single partner with two sets of complementary and relevant skills, as well as offices and expertise throughout Europe, was central to setting Carlyle apart from other suitors. Together with our European buyout colleagues, we look forward to helping grow B&B into the top pan-European operator of budget hotels.”

Equity for the transaction came from Carlyle Europe Partners III, a €5.4-billion buyout fund, and Carlyle Europe Real Estate Partners III, a €2.2-billion real estate fund.

Why Now?
More and more, owners with stakes in hotel groups are seeking to sell their positions while the going is good in hospitality. Valuations are high and the KPIs of the hotel industry are at peak positions, so groups feel that they will get a high ROI now by exiting.

Other groups looking to sell include the owners of FRHI Hotels & Resorts, whose high-end brands include Fairmont, Raffles and Swissotel. The Toronto-based company is owned by a Qatari government fund and Saudi Prince al-Waleed bin Talal’s Kingdom Holding Company. FRHI operates 116 hotels with nearly 44,000 rooms in 34 countries. A sale of FRHI could give a boost to merger and acquisition activity in the hospitality sector, which has been mostly dormant in recent years. One hotel executive estimated that FRHI could fetch up to $3 billion.

Recent deals include KSL Capital Partners' sale of the Malmaison and Hotel du Vin hospitality chains to Singapore's Frasers Hospitality, a deal reportedly worth £363 million or around US$576 million. Hotel du Vin and Malmaison operate 29 boutique hotels across the UK. The hotels had been owned by KSL Capital, the Denver-based private equity group, since 2013, when it acquired the chains for close to US$317 million.