Guide to a Successful Hotel

Acquisition

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SOLD

A team of responsive professional advisers and methodical detail will ensure you are

empowered to move decisively when the right opportunity is presented.

Hanrick Curran has over 30 years of experience in supporting hotel owners and managers to build and protect their hotel

operations. In our experience, there are 4 important primary aspects of the acquisition process that can make or break a successful

transaction.

Approaching a hotel purchase with clarity of your strategy is the key.

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Your Acquisition Strategy

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Before you even start looking at potential

acquisition opportunities, have a good look

at your business model and be very clear

about where your strengths and weaknesses

lie and also the type of hotel that will enable

you to leverage this expertise.

Freehold or Leasehold property

Location: are there regions or towns that you will or will not, look at?

Minimum Earnings (EBITDA)

Price Range and your Valuation Multiple

Business orientation (bars, gaming, retail, accommodations, food).

Prepare a list of criteria that your target venue should tick o�:

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Once you have established your acquisition strategy and have identified a number of

potential targets, start obtaining information from the agent (or vendor) and

conduct a high level review to identify headline opportunities and threats.

High Level Review to Assess Suitability of a Target Venue

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Financial performance of hotel earnings by department for the last 3 years.

Identification of over-performance and/or under-performance in departmental contributions.In particular key ratios such as gross margins, labour percentages, direct expenses.

A review of key property expenses.

A review of add-backs that would be adopted by the vendor and the reasonableness thereof, this will include amongst other things the savings achieved from leveraging the vendor’s existing purchasing power. Also be mindful of a cost (or saving) of owner’s time in hands on management of the venue.

A physical inspection of the property to gain an understanding of the internal lay-out, age of the venue, essential R&M and capital expenditure that will be required to maintain the earnings base. Quantify costs identified from this inspection andaccount for it in the purchase price consideration.

Outcomes from research conducted of competing venuesin the trade catchment area. Determine if there has been some changes or likely to be some changes inthe near future that could impact the historical earnings.

This high level due-diligence review should address:

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Remember it is far easier to buy a hotel than to sell one.

It is important to remain impartial in your approach at this stage and keep an open mind

about the property.

Too often buyers can get caught up in the process and forget about the fundamental criteria that they had set. Be prepared to

walk away.

You may need to look at quite a few venues before you find one that matches your criteria.

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Once you have decided to progress a potential acquisition, develop your negotiation strategy

with the agent and vendor.

There are 3 important elements to the negotiation:

Developing a Negotiation Strategy

Based on your preliminary evaluation of earnings, decide on your minimum and maximum price points.

It is often useful to seek independent advice to help you understand where the market value for the property sits.

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No.1 Price

Consider the information you will still need and other conditions that will need to be satisfied and included with your offer.

Typical conditions to be included are:

Detailed due-diligence period (minimum 30 days,potentially 45-60 is achievable)

Finance approval (typically obtained during thedue-diligence period)

Independent valuation (typically obtained during the due-diligence period)

Legal documentation

Statutory transfers

Time lapse of the offer

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No. 2 O�er Conditions

your approach to submitting an offer.

This is a crucial stage to get right and there is an art to reading the situation to submit a successful offer.

The approach to pricing is an important consideration but

so is how you present it. Venue’s are often subject to an

Expression of Interest campaign, so you want to make sure

the vendor sees your offer in it’s best light and has confidence

in your ability to complete the transaction if you’re selectedto proceed into exclusive due diligence.

Your Expression of Interest should include ‘your story’ and

any key messages that might be important to the Vendorin making their decision that is over and above the price.

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Outcomes from research conducted of competing venues

Depending on the mode of sale you will need you to consider

No. 3 Approach

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The approach to pitching your o�er price could be a combination of:

A ratcheted approach – submit a “low” initial offerto test the water and gauge the strength of anycompeting offers.

Key risk: you get left in the wake of anotherbuyer and miss out.

Go hard early – submit your “highest and best offer” upfront with a tight timeframe for acceptance.

Key risk: you need to be confident with your valuation.

Socialise the offer – make a verbal offer and get feedback from the vendor or agent before committing to a firm written offer.

Intermediate – use a third party negotiator to bid onyour behalf.

Key risk: not taken seriously so don’t get honest feedback.

Key risk: loose some control.

Your approach may well depend upon your bargaining

power, experience and how willing you are to walk away

from an acquisition. Remember to remain objective!

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It is important to put together your team of professionals to

assist you with your due diligence.

Your professional team should comprise of experts in both their discipline and the hotel industry including:-

Accountants to assist with the financial modelling, due diligence and tax structures to ensure maximumflexibility and minimised tax impacts.

Solicitors to assist with contractual documentation, licence and property due diligence.

Finance broker or bank manager to ensure your finance costs are minimised, and finance cash flows fit with thecash flows the venue will be generating.

Gaming analysts to quantify any gaming upside, machine or game upgrades and the latest technology.

Other experts to assist with menu engineering, outsourcing review, time & attendance or stock systemsand security vulnerabilities

Putting your Acquisition Team together

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As always – try to keep emotion out of it.

There are many tales of heart over head acquisitions, but most don’t end up well. Remember you are buying an asset to

feed you and your family, and to fund you through to and into retirement.

That is too important a decision to leave to your “gut” alone.

For expert support through your hotel acquisition assessment and to ensure an objective decision process please contact one of Hanrick Curran’s Hospitality Specialists: Kim Hanrick, Peter Maletz

Jeremy Wicht or Ian Van Der Woude on 07 3218 3900.

Request a Free Hotel Review Assessment from one of our hospitality specialists and

get to know us better.

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