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Timing it right
Blackstone's Motel 6 returns
PRESENTED BY 10 EAST
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September 23, 2024
Happy Monday. Here’s what we’ve got today…
A look at Blackstone’s possible returns math on Motel 6 exit
Plus, Qualcomm makes a move for Intel
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Timing it right:
Blackstone Real Estate has agreed to sell G6 Hospitality, parent company of the Motel 6 and Studio 6 brands, to Softbank-backed Oravel Stays, the Indian parent company of travel tech provider OYO, for $525 million in cash.
Blackstone bought Motel 6 in 2012, paying $1.9 billion to French lodging company Accor for the chain, whose name references its $6 nightly rate when it was founded in 1962.
Accor had itself purchased the brand in 1990 from KKR to expand its North American presence, but headwinds in the budget hospitality segment eventually turned Motel 6 into a drag on the rest of the company’s portfolio of brands.
Relatively cheap-to-build locations meant an influx of competitors, while mid-market brands like Holiday Inn began siphoning off core customer segments like frequent business travelers. "This is a business that hasn't performed particularly well over the last 20 years," noted one Deutsche Bank analyst.
Patrick Sayer, former chief executive of Eurazeo, which at the time held a stake in Accor, shared an even less favorable view of the asset: "The Motel 6 issue polluted the perception of Accor since its acquisition," he said.
An Accor initiative to transition from direct property ownership to an asset-light franchise model wasn't enough to move the needle, and Accor's CEO put out a public invitation for bids: "If anyone is interested in Motel 6, the door is open."
While not a full-blown fire sale, Blackstone did take advantage of the less-than-favorable market perception to negotiate a purchase price of around $25,000 per room, which analysts said was below replacement cost.
The sale to Oyo caps off a nearly 12-year hold period for the business, which Blackstone says "more than tripled" its initial investment. “This transaction is a terrific outcome for investors,” said Rob Harper, head of Blackstone Real Estate Asset Management Americas.
A three times return on capital over more than a decade is nothing to write home about, but early and consistent distributions mean Blackstone's final IRR on the deal is likely more attractive than it might seem.
At close, the firm contributed equity of $626 million, or around one-third of the total purchase price.
Three years later, it launched a $1.8 billion Motel 6 securitization that refinanced existing debt and let Blackstone pull out its full equity contribution, per Thomson Reuters. A subsequent 2017 refinancing returned an additional $287 million.
Around $900 million was spent on various renovation projects through the hold. Additional equity may have been required, but some or all of the spend was funded through capex reserves set aside during the refinancings and a separate fund-level debt contribution.
Illustrative Motel 6 returns scenario assuming October 2012 entry and December 2024 exit
Under Blackstone ownership, Motel 6 continued its shift to the asset-light franchise model. From entry in 2012 to the most recently available data in 2021, the firm sold off at least 354 of its owned properties. Assuming a conservative value per key of around $25 thousand (the purchase price & 2012 CMBS appraised value) and a portfolio-average room count of 124, that works out to north of $1.1 billion in proceeds through 2021.
More locations have been sold since, though no definitive data is available.
Assuming outstanding debt, cumulative cash flow from operations, exit proceeds, and post-2021 location sales all net out to zero, Blackstone may have handed investors the bulk of their distributions from the deal some time ago. While the illustrative outcome is potentially rich relative to Blackstone's ‘more than tripled’ returns guidance, rough back-of-the-envelope math shows a gross IRR that is meaningfully better than what would have been achieved had distributions come only upon exit (around 10.1 percent, in that scenario).
Goldman Sachs & Co. acted as Blackstone’s lead advisor and Jones Lang LaSalle Securities and PJT Partners acted as financial advisors. Simpson Thacher & Bartlett served as Blackstone’s legal advisor.
DEALS, DEALS, DEALS
• Qualcomm (Nasdaq: QCOM) approached beleaguered chipmaker Intel (Nasdaq: INTC), trading at a market value above $96 billion, about a potential takeover, per the Wall Street Journal.
• StandardAero, a Carlyle-backed aerospace engine aftermarket services provider, is hoping to raise $1.1 billion in its NYSE IPO, targeting a valuation of up to $7.5 billion.
• Masdar is in talks to acquire Saeta Yield, an Iberian renewable energy producer, from Brookfield for more than €1.5 billion, per Bloomberg.
• Zabka, Poland's largest convenience store chain owned by CVC Capital Partners, announced plans for an IPO on the Warsaw Stock Exchange that could value the company at up to $8 billion.
• Stryker (NYSE: SYK) acquired NICO Corporation, a provider of minimally invasive neurosurgery devices for tumor and intracerebral hemorrhage procedures.
• Affinity Equity Partners agreed to acquire Lumus Imaging, a 150-site medical imaging business, from Healius (ASX: HLS) for A$965 million.
• Enfusion (NYSE: ENFN), a developer of software for asset managers trading at a market value above $1.2 billion, is in the process of hiring advisors to evaluate strategic options, including a potential sale, following private equity interest.
• Cellnex (Madrid: CLNX) is exploring the sale of its French data centers, per Reuters.
• KEV Group, backed by Serent Capital, acquired Gray Step Software, a provider of school booster finance software.
• CREO Group, a Mill Point Capital portfolio company, acquired United Solutions, a Massachusetts-based manufacturer of household furniture products.
• Vista Equity Partners invested in Gnosis Freight, a shipping container lifecycle management provider.
• BNP Paribas agreed to acquire HSBC’s (NYSE: HSBC) private banking operations in Germany.
VENTURE & EARLY-STAGE
Tech, Vertical SaaS, & Misc. Enterprise
• Fathom, a meeting intelligence platform, raised $17 million in Series A funding led by Telescope Partners, with participation from Maven Ventures, Character, Active Capital, and Rackhouse Ventures.
• Jump, a Paris-based freelancer benefits startup, raised €11 million in Series A funding led by Breega, with participation from Index Ventures and RAISE Seed For Good.
Healthcare
• Scribenote, an AI-powered medical scribe for veterinarians, raised $8.2 million in seed funding led by Andreessen Horowitz, with participation from Inovia Capital and the Velocity Fund.
Industrials, Greentech, & Other
• MetOx International, a Houston-based developer of high-temperature superconducting wire, raised $25 million in Series B extension funding led by Centaurus Capital and New System Ventures.
• David Energy, a retail clean electricity provider, raised $23 million in Series A-1 funding led by Cathay Innovation, with participation from Union Square Ventures, Keyframe Capital, Equal Ventures, and BoxGroup.
• Sateliot, a Spanish startup building a 5G NB-IoT satellite constellation, raised €10 million in Series B funding led by Global Portfolio Investments, with participation from Indra, Cellnex, and SEPIDES.
• FluoRok, an Oxford University spinout developing sustainable fluorochemical production methods, raised £7.7 million in new funding led by BGF, with participation from Green Generation Fund, Volta Energy Technologies, Oxford Science Enterprises, University of Oxford, and Excellis Holding.
• Karman Industries, a Long Beach-based startup developing advanced electric heat pumps, raised $4 million in pre-seed funding led by Riot Ventures, with participation from Space VC.
FUNDRAISING
• KKR raised $4.6 billion for its debut Ascendant Fund, targeting North American middle market buyouts.
• Miura Partners raised €475 million for its fourth flagship fund focused on middle market assets in Spain and Portugal.
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