Permira pays £712m for Little Chef, Travelodge

UK private equity house Permira has agreed a deal with Compass to acquire its Little Chef and Travelodge divisions in a £712m transaction.

As expected, UK private equity firm Permira has reached an agreement to buy Travelodge and Little Chef, the hotel and roadside restaurant businesses currently owned by UK foodservices group Compass, for £712m (E1.1bn).


Permira, formerly Schroder Ventures, has formed TLLC Limited which will acquire the two businesses on a debt and cash free basis.


Travelodge is the UK's second-largest budget hotel company with over 12,000 rooms located in roadside and urban locations in the UK. Little Chef is a UK roadside restaurant business with 368 outlets on trunk roads, in addition to outlets on Compass Group’s Moto sites.


Compass put the businesses up for sale in June of this year following a strategic review of the company’s operations. A number of buyout houses made the early running for the two assets, including Cinven, Apax Partners and Sun Capital, although it emerged in October that Permira was in exclusive talks with Compass over the sale.


The transaction completes a successful end to the year for Permira, following its profitable sale of Homebase to Great Universal Stores for £900m. Permira’s other major transaction in 2002 was the E675m take-private of Italian luxury boats manufacturer Ferretti.


The £712m price is below Compass’s original target of £800m, although analysts had predicted the assets could fetch as little as £600m, with many regarding the economy hotel business as having far greater potential for growth than the Little Chef restaurant chain. In the year to 30 September, Travelodge and Little Chef had a combined turnover of £368m and contributed £105m to Compass Group’s operating profit. The businesses had net assets of £707m as at 30 September 2002.


Permira intends to develop both businesses over the next few years, and has prepared a significant capital investment programme in anticipation of both companies’ expansion. The firm intends to increase the number of hotels operated by Travelodge and the brand development programme already started by Compass Group in Little Chef will be continued.


Financing for the transaction is being provided by CIBC and Royal Bank of Scotland.


Permira partner Carl Parker said in a statement: “Travelodge is the most highly-recognised brand in the budget hotel sector whilst Little Chef has a unique position in the roadside catering market, which provides a solid platform for future development.”


The transaction was coordinated by Salomon Smith Barney, and is expected to complete in January, subject to approval by the European authorities.