Opex Awards 2016: Asia, large-cap – Actis

Plateno's position as one of China’s leading economy and mid-tier hotel operators was cemented this year. In February, shareholders, including London-based growth investor Actis, sold a combined 81 percent stake to Chinese market leader JinJiang Hotels for an enterprise value of more than $1.5 billion.

Over the course of Actis’s more than seven-year investment in Plateno made through Actis Emerging Markets 3, the company – formerly known as 7 Days Inn – was transformed. It grew from a single-brand operator with 160 budget hotels in 28 cities to one with more than 20 brands – including Portofino Hotels and Lavande Hotels – operating more than 2,500 hotels in more than 300 cities. In 2014, it ventured internationally, opening hotels in Thailand and Malaysia.

Judge Ivo Naumann, a partner with McKinsey & Company, described the hotel group’s expansion as “more than impressive”. “It was the deep understanding of consumer preferences and megatrends within growth markets that provided the foundation for this case,” Naumann said.

Amid what Actis described as “explosive growth” in demand for budget and mid-range accommodation in China generated by domestic business travellers and tourists, the GP made its initial investment in 2008 in the rapidly growing hotel group. It backed the founder and existing management team in its strategy to develop a “lease and operate” model.

Over the next five years, with significant investment into the hotel membership scheme that connected it to online customer services and an electronic and mobile booking system, the group expanded its 800,000-strong loyal customer base to a membership programme of 70 million.

Actis committed additional capital in 2013 when Plateno de-listed from the New York Stock Exchange. The move coincided with a shift in strategy to respond to increased demand for mid-range accommodation. This resulted in the development of new mid-tier brands and an upgrade in décor and design in existing hotels. Among other operational improvements, it closed underperforming hotels; centralised purchasing activity that increased the group’s buying power; and standardised products and services.

In line with Actis’s commitment to ESG, in 2010 management introduced a Green Hotel scheme that discontinued supplying one-use amenities such as toiletries and encouraged guests to bring their own or purchase re-usable items. The firm also worked with management to formalise health, safety and environmental policies across the group, including fire safety and food hygiene compliance, as well as licensing.

By exit, the group’s model had shifted from lease and operate to franchising the bulk of its properties with a centralised membership programme and booking system, resulting in a boost to profit margins and return on equity.

The company reported revenue CAGR of 61 percent from 2008-15, and EBITDA from negative to more than $120 million on exit.

“I was impressed by the focus given to operational excellence throughout the journey. The combination of efficient service, clean rooms and value for money – pricing – requires strong processes along the entire value chain,” Naumann said.

Actis exited the company with it positioned for further growth. Future plans include the roll-out of 500 hotels under the Hampton by Hilton brand across China over the next eight years.