Carlyle leads $688m take-private of China hotel chain

Carlyle is leading its second take-private of a US-listed Chinese company, following a trend of privatisation deals involving Chinese companies listed overseas.

The Carlyle Group is leading a consortium of investors that have reached an agreement with the management of 7 Days Group Holdings, a Chinese hotel chain listed on the New York Stock Exchange, to take the company private for $688 million, according to a Securities and Exchange Commission filing.

The offer adds up to $13.80 per ordinary share of the company, which is a 30.6 percent premium over the share price on September 25, the day before the offer was announced, according to the filing. It is also a slight increase from the original offer of $12.70 per share, or $633 million altogether, according to the 7 Days website.

In addition to Carlyle, the major buyers include Sequoia Capital Partners, Actis (which is already a shareholder in 7 Days), and Boquan He, the co-chairman of the company’s board of directors. A number of other management members are also rolling over their interest in 7 Days.

Carlyle is providing its share of the funding through Carlyle Asia Partners III, while Sequoia’s funding comes from its Sequoia Capital China Growth 2010 Fund. A group of five banks will also provide a loan of $120 million for this transaction, according to the filing.

The deal is subject to shareholder approval, and is expected to close in the second half of this year, according to the filing.

The plunging valuations of US-listed Chinese companies after a series of accounting scandals have caused private equity interest in Chinese take-private deals to spike, Private Equity International reported earlier. Eight private equity-backed take-privates of Chinese companies have been announced since June, as compared to four completed in the full year 2011, according to data compiled by law firm O’Melveny & Myers.

Meng Ann Lim, head of China and Southeast Asia at Actis, told PEI earlier that although 7 Days has 1100-plus hotels in China at this point, its valuation on the NYSE is barely the same as when it listed with 300 hotels.

“So far, none of these companies have been suspected of any accounting irregularities, but [7 Days] is still bearing the brunt of these perception issues of Chinese companies,” he said.

One of the largest Chinese take-privates was also led by Carlyle in December: the $3.7 billion Focus Media buyout – a deal that drew some scepticism because of its size, PEI reported earlier. That deal is expected to close in Q2.