B&B Hotel
We setgreat store by our unique approach to originating deals. In the case of B&B Hotel, we had known the company for nearly 10 years and, despite the complexity of the deal, were able to identify the right management buy-in candidate to modernise the company and boost its growth potential. In two short years we were able to transform the company, put in place the building blocks for future growth and achieve an excellent return on our investment.
Creating market leaders
European budget hotel operator Galaxie was the third largest hotel chain in France when we acquired it in July 2003. Headquartered in Brest and trading under the B&B Hotel brand, Galaxie had grown aggressively since it was founded in 1990. It owned and ran more than 100 hotels throughout France and eight in Germany, with a total of some 7,260 rooms, most of them in the one-star segment.
The dynamic nature of the budget hotel market in France and its relative fragmentation in Europe created the ideal conditions for Galaxie to develop itself as a European market leader. And it fell in line with our strategy to create leading players in the sectors in which we invest.
The deal
This was a complicated transaction. Not only did it involve twenty vendors, each with widely differing exit agendas. But our previous success of investing in the hotel sector and our prior knowledge of Galaxie through Frédéric Chauffier, who had represented another Private Equity fund on the Board between 1996 and 1998, meant we were able to secure exclusivity early on in the process.
And we stuck with it, working on the deal for 13 months until we were in a position to make a successful offer to all vendors. During that time we conducted extensive commercial due diligence on more than 100 sites and dealt with complex legal and tax issues linked to the nature of the business and its properties.
Founder Francois Branellec sold his entire stake in the business as part of the deal. In order to accelerate the company’s growth plans, the management team was reinforced by Georges Sampeur, former Chief Executive Officer of Carlson WagonLit France.
The strategy
Galaxie’s performance improved dramatically following George Sampeur’s appointment. Part of this improvement was down to adapting the Group’s data processing platform for new distribution channels, such as the Internet, which led to a doubling of annual bookings.
In addition, we refinanced the company to the tune of €223 million in July 2004, replacing several lines of mortgage debt with a single mortgage facility that would finance the Group’s capital expenditure programme from 2005 to 2008.
We also sorted out the loss-making German operations and re-energised the pipeline of new hotel properties, which had been allowed to grow tired. Finally we implemented an aggressive growth strategy, and boosted the company’s capital expenditure programme.
Exit
The exit was timed to take advantage of both the company’s excellent growth profile and a change in the taxation of French real estate assets.
In July 2005, Galaxie was sold to Eurazeo for €385 million, resulting in a significant return for Duke Street investors.