Deal in Focus: PAI checks in to B&B Hotels in €825m SBO

Carlyle and Montefiore Investment, the owners of B&B Hotels since 2010, have entered talks with PAI Partners regarding the sale of the French budget accommodation operator.

While the enterprise value for B&B Hotels was not disclosed, an unquote" source estimated the company's value at €825m. Should it be confirmed, the figure lies far ahead of the €480m value attributed to the asset when it was bought by Carlyle and Montefiore in September 2010.

Pending a works councils consultation, Carlyle's sale of its majority stake could result in a return in excess of 2x, according to the same source. The firm began contemplating an exit alongside fellow shareholder Montefiore just before the summer of 2015, although the actual sale process began in September.

The purchase will be funded via PAI's sixth buyout fund, which closed on its €3.3bn hard-cap in January 2015. The vehicle, targeting LBOs in the European mid- to large-cap space, was most recently used to acquire a 40% stake in Madrid-headquartered outsourcing specialist Konecta.

According to a source from the buy-side, quick reactions were key in PAI landing the B&B deal. The GP had been acquainted with CEO George Sampeur since the previous 2010 sale process and approached the executive about a potential takeover in Q4 2014. After other suitors made their move, a two-stage auction was set up for B&B. The time frame of the process was reportedly so limited that while PAI put forward a finalised offer, others, less familiar with the asset, requested deadline extensions.

Fourth time's a charm
Founded in 1990, B&B runs a network of budget accommodation establishments. Headquartered in Brest, the business manages more than 28,000 rooms across 343 hotels in seven countries. According to an unquote" source, the company most recently posted €153m in EBITDA.

This marks the fourth private-equity-backed buyout B&B Hotels has witnessed since inception. In July 2003, when it still operated under the Galaxie brand, the company was fully acquired by mid-market GP Duke Street from founder François Branellec for more than €200m.

In July 2005, the company changed hands to Eurazeo for an estimated €400m. The SBO marked the end of an auction process initiated by Duke Street with the aim to exit B&B's real-estate assets only; however, Eurazeo's bid persuaded the seller to offload the whole business. The listed-GP snapped up a 73% stake, while the balance was jointly held by Montefiore and B&B's management team.

B&B build-up
In September 2010, three years after backing B&B's bolt-on of competitor Villages Hôtel, Eurazeo sold the business to Carlyle and Montefiore, reaping a 2.1x return and 22% IRR.

Carlyle drew equity from both its €5.4bn third buyout fund and its €2.2bn third real estate fund to replace Eurazeo as majority owner. According to Montefiore CEO Eric Bismuth, Carlyle secured an 80% holding, while Montefiore used its €200m, 2007-vintage second fund to remain as a minority shareholder (circa 5%) alongside B&B's managers (5%).

Under Carlyle and Montefiore's five-year tenure, B&B is understood to have added 110 new establishments to its existing 343-strong network; the expansion has reportedly led to a 13% EBITDA uptick over the period.

The roll-out is set to continue under PAI's ownership. The GP has earmarked additional capital for B&B to strengthen its existing network in Germany, while entering Benelux, Austria and Switzerland, and potentially Brazil and the Middle East. In line with B&B's focus on domestic commercial business travellers, the plan is to grow a denser presence around commercial hubs such as capitals and other major cities.

People
PAI Partners – Edward Chandler (partner).
The Carlyle Group – Jonathan Zafrani (managing director).
Montefiore Investment – Eric Bismuth (CEO).
B&B Hotels – Georges Sampeur (board president).

Advisers
Vendor – Morgan Stanley (M&A); HSBC (M&A); Weil Gotshal & Manges (Legal);PwC (Financial due diligence).

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