How Scandic became Finland's biggest hotel operator

In a bid to become the top hotel company in the Nordic countries, Stockholm-based Scandic Hotels Group has signed an agreement to acquire the Finnish hotel operations of Helsinki-based Restel for €114.5 million in cash. The transaction is subject to regulatory approval.

“We believe this new network and this offering will be a potential benefit to customers all over Finland,” Frank Fiskers, president & CEO of Scandic, said in a conference call to media and investors. “With the Restel network, we will have an unparalleled offering to the combined customers of Scandic and Restel with almost 70 hotels in the Finnish market.” 

Calling the two portfolios “well complementary,” Fiskers said that the deal will boost Scandic's existing presence in Helsinki as well as provide access to 15 new locations throughout the country. The Restel acquisition will give Scandic "better exposure to the growing leisure segment," Fiskers said—and will give Scandic an opportunity to grow Restel's business. 

Right now, Scandic has 230 hotels open and under development, 28 of which are in Finland. Restel, meanwhile, is the second-largest hotel chain in Finland, with 43 hotels (primarily under the Cumulus brand) claiming approximately 15 percent of the market share. Once the deal has been approved, Fiskers said that the Cumulus hotels will be converted to the Scandic brand.

Lessons Learned

The deal comes three years after Scandic acquired Norway's Rica hotels, a move that Fiskers said offered an improved network to travelers across the Nordic region. "That has proven to be a very good investment for us and a very good integration project." 

As with the Rica deal, Fiskers expects the Restel acquisition to bring in new customers to boost brand awareness. "We will get access to contracts of large, national and Nordic [corporations] that we were not able to do before," he said. 

Restel's Value

The acquisition's timing was "of the essence," Fiskel said, noting that Finland's economy has been on the upswing over the last year and change. Scandic's hotels in the country, he added, have done very well, making this a good time to expand. "We are acquiring Restel at a time where there is further demand, further 'attractability' in Finland, and improved [economic] macros will help us fuel the acquisition." Demand across Finland is expected to increase going forward, he added. 


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Resteka's owner, Tradeka, will continue as owner-shareholder. Tradeka's main holdings are Tradeka-sijoitus Oy and Lehtipiste Oy, which invests in Restel.

"Our hotel portfolio will be in safe hands and become part of Scandic's strong brand," Restel CEO Mikael Backman said in a statement. "At the same time, it will have access to their distribution capacity and significant customer base in the Nordic region." 

Hotel operations represent about half of Restel's sales, with restaurants making up the remainder. Restel currently has a portfolio of approximately 7,600 rooms in 43 hotels with long-term lease agreements, seven of which are operated under franchise agreements with UK-based Intercontinental Hotels Group—five Holiday Inns, a Crowne Plaza and an Indigo. Most of these are operated under the Cumulus brand and will be converted into Scandic hotels. Restel will remain the landlord for four of the hotels.

"At present, Restel is getting to be too big for Tradeka, but too small to make it more competitive in our international hotel market," Tradeka CEO Perttu Puro said. "That is why we saw that it is time to give up the hotel business and focus on the development of our restaurant business."

Deal Details

The acquisition price of the transaction is €114.5 million on a cash and debt-free basis and will be paid in cash. On a pro forma basis, as if the acquisition would have been performed January 1, 2016, the acquired operations might have contributed net sales of €203.4 million in 2016 and adjusted EBITDA of €13.7 million. 

The transaction is expected to close late Q4 2017, subject to regulatory approval and other conditions customary for this type of transaction. 

If the regulatory outcome is unsatisfactory, Scandic may terminate the transaction agreement subject to payment of a €5 million termination fee to the seller.

Announcing the deal, Scandic claimed that it sees "good opportunities for sales growth and margin improvement in the acquired hotel portfolio" in the coming years. There is potential for increasing revenue through rebranding the hotels under the Scandic name and expanding Scandic's offering in the Finnish market. Additionally, costs are expected to decrease through coordinated administration and procurement. Overall, Scandic estimates that over time, the acquired operations have the potential to generate an adjusted EBITDA margin higher than the Group's long-term financial target of 11 percent.

Scandic's net debt/adjusted EBITDA might have increased from 1.8x to about 2.4x after pro forma adjustments, based on an acquisition date for net debt per December 31, 2016, and based on an acquisition date per January 1, 2016, for adjusted EBITDA. This is well in line with Scandic's long-term target range of net debt of 2-3x adjusted EBITDA. The total integration and transaction costs are estimated to amount to approximately €25 million. As a result, the transaction is expected to initially have a negative effect on Scandic's earnings per share.

The expected capital expenditure level in the acquired portfolio is estimated to be about 5 percent of sales in the coming years. Scandic also plans to invest an additional approximately €10 million in renovations in 2018.

In the pro forma calculations, property lease agreements have been considered as operating leases. However, a preliminary assessment indicates that some agreements might qualify as financial leasing debt. The estimated preliminary effect would be an increased EBITDA of around SEK125 million and an increased financial leasing debt of around SEK1,800 million. There would be no effect on cash flow and a very limited effect on net equity and earnings per share.