Accor plots Ennismore merger

Hoxton

Accor has announced plans to merge with Ennismore and create an autonomous lifestyle division.

The deal will also see Accor acquire the remaining shareholding of the SBE brand, having acquired half of the group in 2018.

The pair were entering exclusive negotiations over a joint venture comprising 12 brands with 73 hotels, with a committed pipeline of 110 hotels and active discussions over 70 hotels and over 150 destination restaurant and bars.

It was forecast that the lifestyle platform should achieve an Ebitda of over c. €100m by midterm. Accor’s Lifestyle operations today represent c.5% of Accor’s fees and over 25% of the pipeline fees.

The joint venture would see the formation of another entity to hold the £52m leased assets acquired. It will use the Ennismore name and be based in London, two thirds-owned by Accor and a third-owned by Sharan Pasricha, Ennismore’s founder and CEO.

Sébastien Bazin, chairman & CEO, Accor said “Lifestyle, entertainment, places with a soul have been at the heart of our development and growth strategy over the last years. Partnering with Ennismore’s founder Sharan and his great teams will take our Lifestyle ambition to a new and exciting level. With this combination, we are leading the hospitality industry by creating the largest and fastest growing ecosystem of world class brands. Lifestyle is a sector fuelled by passionate and daring entrepreneurs, constantly pushing the boundaries of a reinvented vision of travelling the world. I am proud Accor has been able to join forces with many of the most creative and talented ones. This new powerful combination is set to become the engine of our exciting future growth. “

Pasricha will be co-CEO, alongside Gaurav Bhushan, CEO of the Accor lifestyle division. They will oversee The Hoxton, Gleneagles, Delano, SLS, Mondrian, SO/, Hyde, Mama Shelter, 25hours, 21c Museum Hotels, TRIBE, JO&JOE and Working From_ brands.

Pasricha said: “Over the last nine years, our mission with Ennismore has always been creating hospitality brands that inspire discovery. I'm passionate about how brands make you feel, from the personalised digital experience to the design, and with an incredible team of operators and creatives around me, we have expanded The Hoxton across the globe; reimagined Gleneagles; and crafted unique restaurant and bar concepts. This exciting autonomous entity with Accor - one with culture and brand purpose at its heart - allows us to come together to build on our combined portfolio of unique lifestyle brands, accelerate our growth and explore new markets. I look forward to working with Gaurav and Sébastien on this exciting next chapter as we become an unrivalled player in the hospitality industry.”

The deal with SBE will entail cash and asset swap transaction, with a $300m cash investment from Accor almost entirely through the redemption of SBE’s debt.

SBE founder Sam Nazarian takes full ownership of SBE’s Disruptive Restaurant Group Platform and its 15 owned restaurant and nightlife venues along with an increased majority ownership of C3, a digital kitchens and lifestyle food halls business.

The deal raised some concerns in the sector around the future of the brands. Julie Grieve, CEO, Criton, told us: “Ennismore has been hugely innovative both operationally & with their product offering since launch. They are a well established and growing independent brand. Many in the market have hailed them as the new model.

“Can that innovation continue in a chain? The consolidation & focus on lifestyle in Accor may stop that. And what does it mean for Gleneagles? Ennismore has been a safe haven, will Accor continue to invest accordingly? It will now sit in the same stable as The Savoy & Fairmont.

“The safe custody of these independent brands is now in the hands of a chain, only time will tell how that goes. A strong acquisition for Accor and hopefully a home where these key brands can continue to flourish.”

Tom Oakden, managing director, Hilltop Hospitality Advisors, added: “Assuming they do the deal, I think it is good for both parties and by ring fencing the company still retains some entrepreneurial flair.

“Also on the positives these lifestyle brands are cities and resorts. We know resorts have been performing well, but there is also a future for our cities, or at at least Accor are betting on that. 

“On the negatives, it's a shame to see another independent swallowed up. But isn't it every independent's dream to be swallowed up? There are still plenty of independents coming through and disrupter brands, until they too are bought out.”

 

Insight: There was mumbling in the ranks over this deal for what has been dubbed ‘Accormore’, with one observer telling us “this is trouble - too many of these brands use soul and autonomy” and it is a step away from Accor’s former position with lifestyle brands, which was taking a small stake and then letting the brands run themselves. There is also the question over how autonomous this entity can really be?

But asides the integrity of brands, let’s follow the money. The morning after the announcement Accor’s share price fell by 2%, indicating that the market was not convinced or, like many of us, with the deal not done, it was confused as what the deal actually was and how much it was costing Accor.

Detail is extremely scant on financials and what this as-yet-unsigned deal will involve. What we do know about Accor’s position is that AccorInvest is weighing heavily on its mind as the refinancing deadline approaches. Is this deal a distraction? A sign of intent for future growth?

 

At the end of last year Accor described a “two-pronged approach to re-deploy capital”, by increasing shareholder returns and continuing with bolt-on hotel acquisitions of small and midsize asset-light groups “consolidating leadership in key markets, getting access to leadership in high-growth markets” and “gaining speed on niche segments such as lifestyle”. This would appear to go some way towards doing that, assuming it is what it says on the tin.

 

The group had come under pressure, with reports of shareholders disgruntled at the company’s share price and an increased interest from activist funds.

 

In November last year Accor investor CIAM said that Accor was undervalued by public markets and a good potential target for a private equity buyer. Catherine Berjal, CEO, CIAM, said that a buyer could dispose of Accor’s non-core financial assets and return up to 35% of its market capitalisation in cash, with additional options including selling its luxury brands.

 

Is the company creating a standalone that it could sell if it had to? So far it’s raising more questions than there are answers.