Paramount Hotels, the UK hotel chain, has been sold by Alchemy Partners for £215 million (€323 million; $399 million) to Dawnay Shore Hotels (DSH), an acquisitions vehicle established by UK investment banks Shore Capital and Dawnay, Day & Co.
A spokesman for Alchemy said the deal had delivered profits of £66 million, equating to a return multiple of 2.4 times cash invested and an internal rate of return (IRR) of “just under 20 percent”.
DSH is a new company expected to have a five-year lifespan. Its investors include unnamed institutions and high net worth individuals, together with The Hotel Corporation plc, a vehicle listed on the Alternative Investment Market. The Hotel Corporation has raised £22 million through a placing by Shore Capital – mainly from institutions – and provides a means for investors in public equity to gain an interest in DSH.
“The opportunity to get public institutional money is unusual in a private equity deal,” said Shore Capital group managing director Graham Shore. “The deal allowed conventional fund managers investing in public equities to get direct access.”
DSH has been structured in a similar way to a private equity fund, with Dawnay, Day and Shore Capital receiving 20 percent carried interest between them in the returns of DSH, subject to investors receiving a minimum eight percent per annum return on their participations. In addition, the two firms will receive a combined 0.6 percent annual portfolio management fee.
“The difference with a private equity fund is that we had a specific deal identified. With a fund, you give people money and say ‘go and spend it how you want’. Here, investors knew exactly what they were committing their money to,” said Shore.
He added that some investors in DSH were also investors in the Puma Property Fund, the private equity fund established by Shore Capital and Dawnay, Day in 2002 to invest in UK commercial property. The fund, which closed in February 2003, has purchased £110 million of properties and had delivered a 47.1 percent per annum IRR to its investors at 5 April 2004 after expenses and charges.
DSH will ultimately seek to realise value for its shareholders either through a trade sale, transfer of properties into a Property Investment Fund under new government proposals, or flotation. A statement said DSH intended “to make further acquisitions of complementary hotels and is in discussions to complete subsequent purchases”. Shore told PEO a second deal is “close to completion”.
Aside from that committed by DSH, funding for the Paramount deal has also come from Dawnay, Day, which has committed £5 million; Shore Capital, which has invested £3.75 million; and Anglo Irish Bank, which has provided senior debt facilities.
The directors of DSH include Dawnay, Day principals Guy Naggar and Peter Klimt, and Shore Capital chairman Howard Shore. David Pantin, who had a five-year spell as managing director of luxury hotel chain Rocco Forte Hotels, becomes chairman.
Founded in 1994, Paramount Hotels comprises 13 three, four and five-star hotels throughout the UK, including the Marine Hotel in Troon, host to the upcoming British Open golf tournament. The hotels cater for business and leisure guests, with large areas set aside for conferences, banqueting and leisure.
Alchemy Partners provided £27 million of equity finance when acquiring Paramount from Malaysian company Advance Synergy in a £77 million deal in June 1998. In 1999, Alchemy provided a further £14 million for Paramount’s £57 million acquisition of Scottish Highland Hotels.
Alchemy has enjoyed a purple patch in terms of realisations recently. Over the last couple of months, it has sold the Four Seasons nursing home group to Allianz Capital Partners; its minority stake in Irish educational publisher Riverdeep to management; and achieved an IPO of UK coal producer ATH Resources on the London Stock Exchange.