Whether you are an experienced hotelier or just starting out in the hotel industry, the process of buying a hotel can be a daunting prospect. From financing the purchase, to structuring the deal, to due diligence, to negotiating the commercial terms, there are many things to consider and each will impact the success of your new venture. However, if managed well, the acquisition of an already established hotel can be an effective method of growing an existing portfolio or launching a new one.
1. The right fit
Does the hotel you are targeting fit in with your ethos, financial structure and long term business plan? If you do already have a portfolio of hotels, will this one sit well within the group? Whilst each hotel is a stand alone business, it is important not to lose sight of the brand that you are trying to build and establish.
2. Company or business?
The chances are that the hotel you have set your sights on will already be owned by a company. You will have to decide whether to buy that company – including all its rights, assets, liabilities and obligations – or whether to buy just the hotel property and business. There are various legal, financial and tax implications of this decision and it is wise to seek advice early on before committing to either option.
3. Finance
How will you finance this acquisition? Bank lending is a common answer, but what will the bank require in order to put up funds? Another alternative is private investment, if such can be sourced. However, unlike the bank, private investors are likely to want some level of control over the operation of the business and a detailed joint venture investment agreement may be required to protect all parties and their interests.
4. Employees
Employees can be key to the success or failure of a hotel. If there are any particular employees, such as the general manager, chef, or others, who are integral to the hotel in question, their support of the change in ownership will be essential. However, the seller is unlikely to want them to know about the sale too early on in the process and this is something that will have to be carefully managed.
5. Due diligence
Due diligence is the process of investigating the target hotel (either the company or business, depending on which you will acquire). If you are acquiring a company, the rights, liabilities and obligations of that company will remain with it and hidden liabilities can mean that the company is worth far less than the price you have agreed to pay for it. If you are acquiring a business, there may be more scope to pick and choose what exactly you take on. However, employees will transfer automatically and you may want to take over many of the supply contracts, so it is still important to know their terms. As well as employees and contracts, the title to the property itself should be checked, along with any other relevant environmental or property matters. Intellectual property, licensing, finance and tax affairs are just some other examples.
6. Going forward
The acquisition of the hotel is, hopefully, only the first step in a long and successful business. Forward planning right from the outset will help to achieve this. Register any important intellectual property, consider how to incentivise and tie in key employees, get the best possible terms agreed with your suppliers and ensure all your licences and consents are in order. Then you can focus on attracting and welcoming your guests.
Buying a hotel can be simultaneously exciting and nerve-wracking, frustrating and satisfying. Our experienced legal team can guide you through the acquisition process, help you with due diligence and advise you on and negotiate the legal and commercial terms of the purchase contract and related agreements to ensure that your best interests are satisfied. If you are considering buying a hotel and you would like an initial conversation then please contact jnugent@gdlaw.co.uk.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
